Unmasking Gift Card Fraud: Sophisticated Fraud Detection Techniques

Safeguarding Against Gift Card Fraud Techniques

As the popularity of gift cards continues to rise, so does the threat of gift card fraud. Cybercriminals are constantly evolving their techniques, exploiting vulnerabilities to defraud businesses and consumers alike. This article delves into the intricate world of gift card fraud detection, shedding light on the challenges posed by bots, proxies, VPNs, and stolen payment details which result in gift card chargebacks. By understanding these issues and implementing robust security measures, businesses can fortify their defenses against gift card fraud and scams.

Fraudulent gift card purchases are part of a larger issue of carding attacks (also known as "card testing" or "card cracking"), in which fraudsters check stolen credits to determine if the card is still active and how large of a purchase can be made without the payment denied by the card issuer. Gift card carding attacks can be frustrating for merchants as it increases the account's overall chargeback rate. Once the chargeback rate is over a certain threshold, the merchant could lose their credit card processing privileges.

• The Rising Threat of Gift Card Fraud: Gift card fraud affects nearly every business online that accepts gift cards as payment. Sites that sell or rebroker gift cards face an even more advanced threat landscape including money laundering, fraudulent payments, and the usual abuse from bots and proxies. The results from gift card abuse can expand even further beyond financial losses and even cause damage to a company's reputation and brand. This sets the stage for the need to tackle sophisticated fraud techniques head-on.
• Bots - The Automated Threat: Fraudsters employ bots to carry out automated attacks, exploiting weaknesses in transaction risk scoring to purchase gift cards with stolen credit cards. Typically, these fraudulent purchases will result in chargebacks in 1-3 months time. Bots are always getting smarter and can now perform advanced tasks such as generating gift card codes, checking balance values, and conducting brute-force attacks. Services like IPQS bot detection can identify abusive purchases from bots in real-time to prevent & detect chargebacks and streamline the process of selling gift cards without fraud.
• Proxies and VPNs - Masking the Trail: Cybercriminals use proxies and virtual private networks (VPNs) to obfuscate their identities and locations. Proxies allow fraudsters to appear as if they are accessing the checkout page from different IP addresses or devices, making it challenging to trace their activities. these challenges can be quickly solved with a proxy detection solution, that identifies high risk IP addresses in real-time. The IP reputation is an excellent indicator for preventing gift card fraud during the checkout process.
• Stolen Payment Details - Fueling Gift Card Fraud: Stolen payment details are the key facilitator to all gift card fraud. Criminals obtain credit card information through data breaches, phishing, or card-skimming techniques. They then use these stolen details to purchase gift cards, which can be quickly monetized or sold on underground markets. Stringent payment verification is necessary to prevent unauthorized card usage. Stricter controls for ecommerce payment fraud will greatly reduce chargeback rates, keeping your payment processors happy and your processing rates lower.

Best Tools for Gift Card Fraud Detection

Deploying an intelligent fraud detection strategy to combat gift card fraud, which can also stay up to date with new patterns and techniques, is the best defense against relentless cybercriminals. Through interviewing gift card site operators, we've curated the best approach to preventing gift card fraud. These solutions provide layered protection to make it challenging for bad actors to fraudulently purchase gift cards.

• Machine Learning and AI: Utilize machine learning algorithms to analyze vast amounts of data and detect patterns indicative of fraudulent activities. Train models to identify anomalous behaviors, suspicious transactions, or patterns associated with known fraud.
• Device Fingerprinting: Implement device fingerprinting techniques to uniquely identify and track devices used for gift card transactions. Analyze device attributes like IP address, browser settings, and behavioral patterns to identify potential fraud attempts.
• Geolocation Analysis: Leverage geolocation data to detect discrepancies between the customer's claimed location and the actual location of the transaction. Anomalies can be flagged for further investigation.
• Real-Time Monitoring: Employ real-time monitoring tools that detect and alert on suspicious activities, such as multiple failed gift card redemption attempts or sudden high-volume purchases.
• Email Address Risk Scoring: Add additional signals from email address intelligence that can help identify users with high risk payments or any form of suspicious behavior. Data like the email address age, velocity, and past reputation can provide a wealth of data for verifying transactions.
• Phone Number Fraud Scoring: Enrich the phone number associated with the user or transaction with additional tools such as VOIP detection and phone number fraud scoring. VOIP numbers have a high chance of being associated with fraudulent payments.
• Fraud Detection API: Add real-time fraud risk scoring with a quick API request throughout important actions of your website such as registration, checkout, password change, etc.

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Enhanced Security Measures For Gift Card Fraud

Gift card chargeback fraud is one of the most aggressive types of card attacks in the ecommerce industry. Supplement traditional fraud detection techniques with additional security measures that can be implemented on your website or app to reinforce gift card fraud prevention efforts:

• Two-Factor Authentication: Implement two-factor authentication for online gift card purchases or balance inquiries to ensure that only authorized users can access and utilize gift card funds.
• Data Encryption: Encrypt sensitive customer data, including payment details, to protect it from unauthorized access and mitigate the risk of data breaches.
• Transaction Limits and Velocity Checks: Set limits on the number and value of gift card purchases within a specific time frame to prevent excessive or suspicious transactions.
• Fraud Monitoring Partnerships: Collaborate with fraud monitoring services and share information about known fraud patterns and indicators to stay one step ahead of criminals.
• Email Validation: Confirming the user's email address is valid and authentic during signup can help eliminate high risk users with malicious intentions. Take these tools a step further with disposable email domain detection to prevent risky email services.

Solving Gift Card Fraud

Gift card fraud is a complex and ever-evolving threat. Using tools like IPQS which maintain advanced IP address blacklists and reputation scoring for user details is necessary to maintain low chargeback rates with gift card purchases. It's important to closely monitor transactions and user risk, as chargebacks for unauthorized gift card purchases may not be reported for 3-6 months, long after the gift card has been delivered to the client.

Integrating the fraud prevention techniques mentioned in this article will give your team much greater insight into payment quality to identify high risk payments that are likely to trigger a chargeback.