Riskified research shows everybody loves gift cards — including fraudsters

It’s easy to understand why everybody loves gift cards, especially the digital kind.

For gift givers, an online gift card is an instant and virtually effortless win.
For the recipient, gift cards are easy to spend, can be used to purchase a wide variety of products, and last for a while.
For merchants, gift cards provide a powerful marketing tool and help build customer loyalty.

So you won’t find it surprising that the number of card purchases and payments Riskified processed from merchants in 2023 was almost double the number processed in 2021.

Unfortunately, the “everybody” who loves gift cards includes fraudsters. As liquid as cash, ill-gotten gift cards can be instantly and easily monetized, and transactions are largely irreversible. This creates a dilemma for merchants who want to offer gift cards to please good customers without inviting massive fraud. And that’s where things get complicated.

Why gift card fraud is different

Gift cards simply aren’t like most other products. They have their own rules and behaviors across both legitimate and fraudulent purchases — and unless a merchant’s fraud strategy is designed to address those differences, the risks of selling gift cards can easily outweigh the rewards.

To get a better understanding of the unique dynamics of gift card fraud schemes and how they impact merchants, Lev Gal, a senior data analyst at Riskified, analyzed a full year of exclusive transactional data from 2023¹, and provided an additional review of data around Mother’s Day (United States), April through May 2024.

While gift card fraud can include any type of illegitimate activity that involves a gift card, whether as a product or a payment method, Riskified’s research focused specifically on fraudulent purchases of online gift cards.

What is gift card fraud — and what age groups are most susceptible?

Gift card fraud begins with scammers stealing data from vulnerable targets and using it to purchase gift cards online. Gift card thieves commonly target the 60-years and older population, which may be more prone to technical naivete and more likely to have good credit. Fraudsters frequently use social engineering tactics to convince these older consumers to share their personal details.

Also targeted are consumers on the other end of the tech-savviness spectrum: 18-29 year-olds who are digital natives and therefore so comfortable with technology that they underestimate its risks.

These two age groups are the most targeted by fraudsters, who know how to best exploit their respective weaknesses, steal their personal details, and use them to buy gift cards. Researcher Lev Gal commented, “We weren’t surprised to see that the older demographic is targeted by fraudsters in this area — it’s a group known for its vulnerabilities. But it was more surprising that tech-savvy Gen Zs were also a primary target. Their comfort with tech appears to have led to some complacency with risk.”

Once purchased, the thieves quickly spend the cards on high-risk products or simply resell them. In fact, secondary markets for gift cards are everywhere, and fraudsters can easily use any number of channels to quickly resell stolen gift cards at a discount.

Why gift card fraud is so challenging for retailers

For merchants, gift cards create unique fraud threats, and if they don’t take those differences into account in their fraud prevention strategies, it can lead to both high fraud costs and unsatisfied customers.

Lev provided a rundown on what makes gift cards such a pain point for merchants:

Data gaps and instant liquidity. With an online gift card sale, merchants have fewer data points to reference for fraud detection because there’s not necessarily a shipping address involved. Once sent via email, the card is instantly redeemable, so there’s little chance it can be reviewed or canceled.
High-velocity sales may signal fraud — or not. Based on Riskified experience, once fraudsters see that their gift card purchase attempts are successful, they will place as many orders as possible in a short period of time until they are caught and blocked. This can result in massive fraud chains and equally massive chargebacks.

But this pattern doesn’t always mean fraud, because legitimate customers who are “point boosters” may also spend thousands of dollars on gift cards in rapid succession. Merchants don’t want to create friction for those loyal and lucrative customers.
Gifting seasonality. Gift card sales rise during gift-giving holidays, including Mother’s Day, Valentine’s Day, and the end-of-year (especially Christmas eve and day) holidays. Fraudsters are well aware of these upticks in gift card purchases and take advantage of them to get lost in the crowd. Gift card fraud attempts rose dramatically around Mother’s Day in both 2023 and 2024, for example, averaging +30% in 2024. With sales volumes high and review teams overloaded, fraudulent gift card purchases may slip through the cracks during peak seasons. Because gift cards are a very common gift for employees, bulk purchases raise fewer red flags during holiday periods.

All of these factors can lead to higher-than-average unidentified fraud and added costs, more false declines, and significant operational stress for merchants selling gift cards.

Seven top research findings on the state of gift card fraud

The research revealed seven key facets to know about gift card fraud. As Lev puts it, “Gift card purchases are ubiquitous. They are so easy for consumers to purchase and also very likely for fraudsters to target — they are riskier than most other segments. The data shows which demographics (Gen Z and Baby Boomers) and which verticals (retail and electronics) are most targeted, and other key elements to be aware of to keep your gift card business safe from fraud.”

Gift cards are risky business. Riskified analysis shows that gift card segments are significantly riskier compared to the other segments in all industries. While they account for a small percentage of good transactions, their “fraudularity share” is up to seven times higher.
The riskiness differential is biggest in retail. Retailer gift cards have the most significant added risk compared to other goods.
Fraudsters like tech. Electronics gift cards are the most targeted by fraudsters, representing 40% of the industry’s fraudulent population.
Risk varies with value. Transactions with the highest-priced gift cards are the riskiest, but gift cards in the $201+ range present a special challenge for merchants — they represent both the greatest potential revenue and greatest potential for fraud cost. At the same time, cards in the $26 to $100 range are the most popular within both good and fraudulent populations, creating a large operational burden when it comes to distinguishing good from bad purchases. Inaccurate decisions can also burden customer service, which may face a flood of customer complaints about false declines.
Volume matters. Purchases of 11 to 50 gift cards are the most fraud-prone, while purchases of 50+ are safer, mainly because they are commonly submitted by resellers and organizations making bulk purchases. Single-card orders are the most popular (~90% of both good and fraudulent volumes) and slightly less risky.
Beware wolves in grandma’s clothing — senior citizens’ transactions are most risky. The riskiest population of transactions is submitted by consumer profiles age 60+ because that age group is most targeted by fraud schemes to steal personal information.
Chargebacks come fast. Riskified data shows that gift card-related chargebacks are filed significantly earlier than those for tangible goods — about twice as fast, which can impact the results of issuers’ calculations of a merchant’s chargeback rate.

Play your cards right with automation

To optimize revenue potential from gift cards, merchants must identify and understand the specific patterns of legitimate vs. fraudulent behavior in the sector and be able to make high-precision decisions in real-time. Education and automation are both necessary to minimize false declines and chargebacks from gift cards.

Riskified partners with both dedicated gift card merchants (such as Buyatab) and other merchants who offer them, providing comprehensive fraud prevention solutions across diverse retail environments. Talk to a fraud expert to stop all types of ecommerce fraud today.

¹All insights are fully based on RSKD internal data.