Gift Card Fraud: What Every CX Leader Needs to Know 

Gift cards are one of the most popular gifting options worldwide, valued for their convenience and flexibility. Their growing popularity has also made them a prime target for fraudsters. Bad actors are finding new ways to exploit vulnerabilities in gift card systems to steal balances and carry out fraudulent schemes. According to a 2023 report from the Federal Trade Commission, card draining and other gift card-related fraud made up $217 million of the record $10 billion in money lost from scams nationwide.

The rise in gift card crime is proving to be a major headache for eCommerce Customer Experience (CX) leaders, who are on the front lines of resolving disputes, issuing refunds, and managing customer frustration. With fraudsters becoming more sophisticated, businesses are facing an influx of complaints from customers who have had their gift card balances drained or who unknowingly purchased compromised cards. These incidents not only erode trust but also place a heavy operational burden on support teams, forcing them to navigate complex fraud cases while maintaining a positive customer experience. As fraud tactics evolve, CX leaders must constantly adapt, balancing fraud prevention measures with seamless service to avoid friction for legitimate customers — all while mitigating financial losses for their business.

This article explains how gift card fraud happens, why gift cards are frequently targeted, and actionable steps CX leaders can take to detect and prevent these scams.

Gift card fraud refers to any deceptive or unauthorized activity involving gift cards, whether as a product or a payment method. Fraudsters exploit vulnerabilities in gift card systems to steal balances, launder money, or facilitate broader scams. This can include draining funds from legitimate gift card holders, purchasing gift cards with stolen credit cards, or tricking victims into buying and handing over gift card details under false pretenses. Because gift cards are often treated like cash and lack strong consumer protections, they are a prime target for scammers looking to commit fraud while staying anonymous.

Fraudsters have been employing increasingly sophisticated tactics to exploit gift card systems — not just to steal gift card balances but also as a tool to facilitate broader fraud schemes. While some attacks directly target gift cards, others use them as a means to commit chargeback fraud, money laundering, or refund scams. Below are some of the most common methods to watch out for.

Card Draining

Card draining occurs when fraudsters steal gift card balances before the legitimate owner can use them. This type of fraud can happen in several ways:

• Tampering with physical cards – Fraudsters steal inactive gift cards from store displays, scratch off the PIN, record the number, and then replace the protective covering. Once a customer purchases and loads money onto the card, the fraudster monitors the balance and quickly redeems it online.
• Brute force attacks – Cybercriminals use automated bots to rapidly test thousands of random gift card numbers and PIN combinations until they find a valid match. These attacks exploit weak security measures and can drain large volumes of gift cards in minutes.
• Hacked customer accounts – If a fraudster gains access to a shopper’s online account, they can transfer, redeem, or resell stored gift card balances before the rightful owner realizes what happened.

Card draining not only results in direct financial losses but also leads to a surge in customer service disputes, as victims demand replacements or refunds for the stolen funds — putting CX teams in a difficult position.

Gift Card Purchase Masking or Low-Value Item Masking

Fraudsters use stolen credit cards to purchase a low-cost physical item along with a digital gift card, making the transaction appear less suspicious. The small item — often something inexpensive and generic — is shipped to the legitimate cardholder, who may assume it was sent by mistake or as a free promotional item. Meanwhile, the fraudster ensures the digital gift card is sent to their own email address.

Because digital gift cards are often gifted to others, merchants typically don’t flag when the recipient’s email differs from the buyer’s billing details. This allows the scam to go undetected until the legitimate cardholder notices the unauthorized charge — at which point the fraudster has already sold or used the stolen gift card.

This tactic is particularly problematic for retailers, as it often results in chargebacks, customer disputes, and an added burden on fraud and CX teams trying to trace fraudulent transactions. It also underscores the need for stronger verification processes, such as flagging gift card purchases made with mismatched emails or unusual buying patterns.

Refund Scams

Fraudsters often use stolen credit card information to buy products and then initiate a return, requesting a refund in the form of a gift card. This tactic allows them to bypass traditional fraud detection methods and effectively launder stolen money. Some variations of this scam include:

• Return fraud – A fraudster purchases items with stolen credit card details, returns them for a gift card, and then resells the card for cash.
• Fake refund claims – Some fraudsters claim they never received their order (INR fraud) or that the product was defective, demanding a refund in the form of a gift card instead of their original payment method.
• Employee collusion – In some cases, dishonest employees process fraudulent refunds onto gift cards for personal gain.

Gift card refund scams can be particularly frustrating for merchants, as they create chargeback risks, inflate refund costs, tarnish the integrity of inventory, and make fraud more difficult to trace.

Phishing Scams

Phishing is one of the oldest tricks in the book, but it’s still highly effective. Fraudsters impersonate legitimate businesses, government agencies, or trusted colleagues to trick victims into buying gift cards and providing the codes. For instance, a scammer may pose as a company executive or manager, emailing an employee with an urgent request to purchase gift cards for holiday gifts or client appreciation. Believing the request is legitimate, the employee buys the cards and sends the codes — only to realize later that they were communicating with a fraudster.

These scams are particularly difficult for businesses to prevent, as they rely on social engineering rather than technical vulnerabilities. However, the impact is significant — victims may seek reimbursement from the retailer where they purchased the card, putting additional strain on customer support teams.

The Bigger Picture

Gift card fraud isn’t just a problem for consumers — it’s a nightmare for retailers, CX leaders, and fraud teams alike. Whether fraudsters are draining balances, manipulating refunds, or using gift cards to disguise stolen funds, these scams drive customer disputes, financial losses, and operational headaches. Businesses must stay ahead of evolving fraud tactics by implementing stronger security measures, educating employees, and monitoring suspicious activity in real time.

Gift cards are uniquely vulnerable compared to other payment methods. Here’s why they’re often fraudsters’ weapon of choice. 

• Anonymity – Unlike credit cards, gift cards don’t require identity verification during transactions, giving fraudsters complete anonymity. 
• No chargeback protection – With credit card fraud, victims often have the opportunity to reverse fraudulent transactions through chargebacks. Gift cards, however, lack this protection, meaning once the balance is stolen, it’s gone for good.
• Easy resale – Fraudulently obtained gift cards can be quickly sold on secondary markets, often converted into cash or cryptocurrency. This high liquidity makes them an attractive target for fraudsters.

To proactively protect your business, train your CX teams and fraud specialists to recognize these warning signs of potential fraud. 

• Unusually large or repeated gift card purchases – A single transaction involving multiple high-value gift cards or bulk purchases can indicate fraud
• First-time buyers – New customers making unusually large gift card purchases might indicate fraud because they haven’t established a buying history
• Masking behavior – Pairing a gift card purchase with a low-value item to avoid fraud detection systems
• Email address anomalies – Digital gift cards being sent to disposable or recently created email addresses, or multiple cards being sent to the same email in quick succession
• Brute force attempts – Multiple failed gift card balance inquiries or PIN entry attempts could indicate a bot attack trying to identify active card numbers

Gift card fraud creates a significant challenge for CX teams, as they are often the first point of contact when fraud occurs. Victims of scams, whether they unknowingly purchased a compromised card or had their balance drained, turn to customer support expecting quick resolutions. However, because gift cards are typically treated like cash, businesses may have limited ability to refund stolen balances, leading to frustrated customers and damaged brand trust.

Additionally, CX teams face an increased volume of disputes, chargeback claims, and fraud-related inquiries, which strain resources and impact service efficiency. Balancing fraud prevention with a seamless and fair resolution process is critical — too little intervention can leave customers vulnerable, while overly strict policies may create friction for legitimate buyers. As fraud tactics evolve, CX leaders must work closely with fraud and operations teams to implement proactive measures, educate customers, and ensure that fraud prevention efforts don’t come at the expense of a positive shopping experience.

For CX leaders, spotting gift card fraud early is key to reducing customer frustration, chargebacks, and support escalations. Fraudsters exploit gaps in digital gift card security, using tactics like bulk purchases with stolen credit cards or automated attacks to test compromised card numbers. By proactively identifying red flags, CX teams can effectively stop fraudulent transactions before they turn into costly disputes.

How to Detect Gift Card Fraud: Quick Verification Tips

Many fraudsters attempt to bypass security by purchasing digital gift cards in bulk, using stolen credit cards, or testing hacked gift card numbers. Here’s how online retailers can detect suspicious activity early:

1. Monitor unusual purchase patterns – Be on the lookout for high-value or bulk gift card purchases, repeat transactions from the same IP address, or multiple gift card orders sent to disposable email accounts. These patterns may indicate fraud attempts.
2. Verify billing vs. recipient details – While it’s common for gift cards to be gifted, mismatched billing and recipient details, such as a first-time buyer sending multiple gift cards to unrelated email addresses, can be cause for further review.
3. Use Two-Factor Authentication (2FA) – Adding email or SMS verification for high-value transactions can prevent fraudsters from using stolen credit cards to purchase gift cards. 
4. Require additional verification for high-risk orders – Merchants can implement ID verification or manual review for orders exceeding a certain threshold, or for orders that include a low-price item paired with a gift card, reducing the risk of fraudulent transactions.

Fraud Prevention Best Practices for Digital Gift Cards

Beyond monitoring transactions, online merchants must take a proactive approach by integrating advanced fraud detection tools and setting restrictions to mitigate risks.

• Enable AI-powered fraud detection – Machine learning models, like those offered by NoFraud, can analyze transaction behaviors in real time, automatically flagging suspicious activity while minimizing false positives. AI-driven systems can also detect bot-driven brute force attacks, where fraudsters test thousands of random gift card numbers and PINs to find active balances.
• Set gift card purchase limits – Implement restrictions on the number of gift cards per transaction, the total gift card value per order, or the frequency of gift card purchases from the same account or IP address. These limits make it more difficult for fraudsters to cash out stolen credit cards.
• Block high-risk email domains & VPNs – Many fraudsters use disposable email addresses or VPNs to hide their location. Merchants can strengthen fraud detection by blocking suspicious domains and monitoring unusual geographic activity.
• Educate customers on gift card scams – Many victims fall for scams involving fake customer service agents or phishing emails that convince them to buy and share gift card codes. Online retailers should display fraud warnings at checkout, send educational emails, and create blog content on common gift card scams to raise awareness.

Preventing gift card fraud isn’t just about stopping bad actors, it’s about protecting your customers and delivering a seamless experience. NoFraud empowers CX leaders with real-time fraud detection tools that minimize disputes, reduce chargebacks, and prevent fraudulent transactions before they impact customers. By leveraging AI-driven analysis and behavioral insights, NoFraud helps businesses confidently approve legitimate purchases while blocking fraudsters — allowing CX teams to focus on delivering exceptional service instead of managing fraud-related escalations. Schedule a call with our team to learn more.