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Should You Accept Gift Cards? Pros and Cons

March 23, 2023

Gift cards have been the go-to present for just about every holiday for the last two decades. Prior to the early 1990’s, gift “certificates” were given that were essentially an IOU for the restaurant or store that it was purchased from. They were redeemed at-value and usually a “balance” could not carry over. Today, everything is plastic. People use their gift cards online, over the phone, and in-store. Often times, these gift cards are not specific to the location, but a gift card purchased from a major bank with a Visa/Mastercard/American Express logo that can be redeemed in the same way as a debit/credit card. The gift card is in your wallet, safe and secure, right?

Not so fast. As technology advances and we become more dependent on plastic payment methods, so do scammers. These scams range from elaborate schemes to simple swindles, and they affect both the customer and merchant in equal measure. According to the Missouri News Tribune, “According to the Federal Trade Commission, gift cards were reported as the payment method in 26 percent of fraud cases through September 2018 versus 7 percent of fraud cases in 2015, and reported losses in gift card fraud jumped from $40 million in 2017 to $53 million through September 2018.” Security measures for debit and credit cards are ramping up, yet gift cards are still fairly vulnerable forms of payment.

Let’s take a look at some of the hacks and scams that could affect how you use your gift card in the future.

  • During the holiday season in 2018, scammers found ways to steal credit card numbers without any trace back to the source by purchasing gift cards in large value. For example, say someone walks into a phone store and buys a family plan with four phones using a gift card. There is no telling if that money was truly loaded onto the gift card legitimately – a sum larger than $200 on a gift card should be a red flag to a retailer, especially if multiple cards are used all with large amounts loaded.
  • Some gift cards come equipped with PIN’s or access codes. Scammers are taking advantage of customers entering this information into online orders, then gaining access to your remaining balance. Customers are finding out the hard way when they go to make a purchase in-store or online that the card is “declined” and is at a zero balance without any explanation. Since these transactions can’t really be traced, often times the customer is completely out of luck and has to take the loss. One option that some retailers allow is to register your card online – that way your name, address, phone number, email address, and purchase history are available for verification and security purposes.
  • Any company that asks you to pay for a service, sweepstakes, or pay off a debt with a gift card should immediately send a red flag to customers. No reputable company will require a gift card to make a purchase. Scammers often escalate this demand, if customers don’t comply, that they will be sent to jail – that is impossible, and just a ploy to get all your money without the risk of the transaction being cancelled. When your debit/credit card is compromised, it can backfire on the scammer when you cancel your card or claim the transaction as fraud, leaving them without your money – gift cards are the fastest way around this obstacle!

As a merchant, it is up to you if you want to accept gift cards that are not issued by your own store. You are at risk with any type of card transaction, but gift cards are a bit harder to deal with considering that most of these are untraceable scams. Of course, this may cause some loss of transactions, which could ultimately affect your bottom line.

As a customer, your risk lies more with keeping your funds safe and secure. Never give out the PIN on the back of your card over the phone or in-person, and make sure that your online purchase is on a secure website with a security certificate that is easily found. If possible, make your purchases in-store at a register or point-of-sale system that allows you to swipe the card yourself, keeping your PIN entry confidential.

What do you think – are gift cards too big of a risk these days?