How to Detect and Prevent Gift Card Fraud in Your Restaurant

Thousands of restaurant owners see gift cards as a great way to boost sales and delight customers. Recent studies show global gift card sales have reached over $619.25B and are expected to surge more soon.

But there's a catch—fraudsters are always lurking, looking to exploit any loophole they can find. In the past, these gift card frauds were only limited to physical theft, but with advanced technology, digital scams have become harder to detect. So, how can you protect restaurant gift card programs from these scams? 

By looking at the alarming stats of these frauds, we’ve written this article to help you as a restaurant owner and your management team detect and prevent these scams. Keep reading ‘til the end, and let's secure your restaurant's success by turning potential vulnerabilities into fortified strengths. 

What is Gift Card Fraud in Restaurants? 

Gift card fraud involves the unauthorized use or alteration of gift cards, leading to financial losses for both consumers and sellers. These schemes can involve physical cards and digital code alterations using different tactics.  

When a customer buys or receives a gift card from restaurant loyalty programs, they face several risks of fraud. Scammers use multiple methods like phishing or physical theft to intercept card data during digital transactions or manipulate physical cards on restaurant premises. 

To safeguard your restaurant against gift card fraud, it's crucial to understand the techniques scammers employ to deceive victims and exploit the system. Here are six common types of gift card scams that you should be aware of: 

6 Types of Gift Card Frauds 

1. Physical Tampering: One of the most common gift card frauds is physical tampering. Scammers discreetly remove cards from racks, scratch off the protective layers to access PIN codes, and then replace the layer as if untouched. Unsuspecting customers purchase these altered cards, and once activated, scammers drain the funds. 
2. Online Reselling Scams: This type of fraud involves scammers buying or obtaining gift cards through illegal means, such as using stolen credit card details. They then sell these gift cards at discounted rates on unofficial websites or online marketplaces. Buyers who purchase these cards risk losing money if the original theft is discovered, and the cards are deactivated. 
3. Account Takeover: Fraudsters use malware to gain unauthorized access to a person's accounts where their gift cards are registered. Once inside, they transfer the digital gift card balances to different accounts under their control and steal the money or gift card benefits. 
4. Phishing Scam: Scammers often use emails, texts, or phone calls pretending to be from reputable companies requesting gift card numbers and PINs for verification or account updates. Once the victim provides these details, scammers can easily steal the balance. 
5. Clone Gift Cards: Scammers can duplicate gift cards by using skimming devices that read and record the card's data. They create multiple functional copies of the card, which can be sold or used before the original cardholder notices any fraudulent activities. 
6. Redemption Hijacking: In this scam tactic, fraudsters acquire the details of a gift card number and PIN and then monitor the card's balance online. As soon as the card is loaded with funds, they quickly redeem the balance through purchases or sell the card details to other buyers. 

How to Prevent Gift Card Frauds: Top 10 Strategies for Restaurant Owners 

Gift card scams remain a significant concern for restaurant owners, often leading to immense amounts of lost revenue and a damaged reputation in customers’ eyes. According to a report, the loss from US gift card fraud in 2023 amounted to $217 million, so you must take effective preventive measures to save your restaurant from these frauds. Here are 10 practical strategies for gift card fraud protection: 

1. Implement Strong Encryption 

Using strong end-to-end encryption methods such as Advanced Encryption Standard (AES) ensures gift card data is protected. Employ strong gift card fraud protection tools to secure sensitive data transferred over the internet. 

2. Use Tokenization 

Tokenization replaces sensitive gift card information with a unique identifier that cannot be reverse-engineered. This method makes it difficult for fraudsters to gain useful data if they manage to breach your systems. Solutions like Paytronix and Square offer tokenization services. 

3. Monitor Transactions in Real-Time 

Deploy real-time transaction monitoring tools to detect unusual patterns and flag suspicious activities. These tools use machine learning and AI to identify potentially fraudulent transactions based on historical data and behavior analysis. 

4. Use Registered Cards 

Encourage customers to register their gift cards and comp cards through a simple process on your restaurant website or restaurant website builder. Registration can include setting up a PIN that is not visible on the card itself, adding an extra layer of security. 

5. Implement Multi-Factor Authentication 

Integrate a multi-factor authentication (MFA) system for accessing gift card management systems. MFA adds a layer of security by requiring users to provide two or more verification factors, such as a password and a code sent to their mobile device. 

6. Conduct Regular Security Audits 

Regularly audit your gift card systems and processes to identify and address vulnerabilities. You can also get help from third-party security service providers to perform comprehensive security assessments and penetration testing. 

7. Educate Employees 

Train your staff on the importance of gift card security and the common tactics used by fraudsters. Implement regular training sessions and simulations to keep employees vigilant. Resources from organizations like the National Restaurant Association (NRA) can provide valuable training materials. 

8. Limit Gift Card Activation and Reload Permissions 

Restrict gift card activation and reload capabilities to a limited number of trusted employees. Implement role-based access controls (RBAC) using systems like Microsoft Entra ID or JumpCloud to ensure only authorized personnel can perform these actions. 

9. Use Secure Gift Card Providers 

Partner with reputable gift card providers who offer robust security features. Providers like Blackhawk Network and InComm offer advanced fraud detection and prevention technologies. 

10. Collaborate with Others 

Work with other local businesses and industry groups to share information about known scams and how to use gift cards for guest management. Share your thoughts and best practices for preventing gift card fraud in real-time.

Implementing Fraud Detection Measures in Your Restaurant 

As the healthcare industry saying goes “Prevention is always better than treatment.” The same goes for gift card fraud detection!   

The same technology fraudsters use can also be useful to protect your restaurant. Prior detection of gift card scams helps your restaurant management mitigate the loss. Here are five effective technologies and services each you can implement to detect fraud in restaurant gift card programs: 

Gift Card Fraud Detection Technologies 

1. Point-of-Sale (POS) Integration: Use POS systems that integrate directly with gift card platforms to monitor real-time transactions and detect anomalies. 
2. Encryption Technology: Ensure that all data related to gift cards, especially PINs and card numbers, are encrypted to prevent unauthorized access. 
3. Fraud Detection Software: Implement software that uses algorithms to detect unusual patterns that may indicate fraudulent activity, such as rapid increases in gift card activations or redemptions. 
4. Database Monitoring Tools: Use tools that monitor and alert you to unauthorized access or changes to your gift card database. 
5. Digital Receipts: Offer digital receipts for gift card transactions to create a verifiable trail of purchase and activation that can be easily accessed if fraud is suspected. 

Third- Party Services for Enhanced Security 

1. Professional Security Assessment: Hire security experts to review your current gift card program and systems to identify potential vulnerabilities and recommend enhancements. 
2. Managed Security Services: Consider outsourcing your cybersecurity needs to professionals who can provide 24/7 monitoring and response to security threats. 
3. Employee Training Programs: Invest in regular training for your staff to recognize and respond to potential fraud. This includes training in handling suspicious behaviors and securely managing gift card transactions. 
4. Legal and Compliance Consultations: Engage with legal experts to ensure your gift card program complies with all applicable laws and regulations, which can vary significantly by region and affect how you handle fraud prevention. 
5. Customer Verification Services: Use services that verify customer identity during gift card purchases, especially for high-value transactions or when cards are purchased in bulk.

Frequently Asked Questions About Detecting and Preventing Gift Card Fraud 

Gift card fraud is no laughing matter, particularly because it can creep up on your business with little to no warning. It's crucial to understand both how to prevent it and how to resolve it if an incident has taken place. Read the following commonly asked questions to equip yourself and your team with relevant knowledge. 

How do you check if a gift card is scammed? 

To identify whether a gift card is scammed, start by inspecting its transaction history using your point of sale (POS) system. Look for red flags like multiple rapid balance changes or redemptions at unexpected locations. 

If it’s a physical card, check for signs of tampering, such as damaged protective layers or mismatched fonts. Always confirm the card's origin—cards purchased from unauthorized sellers or third-party marketplaces are at a higher risk. 

How do I make sure my gift card has not been tampered with? 

Preventing gift card tampering requires a proactive approach: 

• Inspect cards before sale: Ensure the protective personal identification number (PIN) cover is intact and your cards look professional. 
• Secure storage: Keep your physical cards in locked  areas to deter unauthorized access. 
• Customer vigilance: Advise customers to check for visible damage before purchasing cards from store racks.

By implementing these steps, your business can better protect against tampering while maintaining customer trust.

How do you secure a gift card? 

Securing gift cards involves a combination of technology and process improvements: 

1. Encryption: Use advanced encryption protocols to protect cardholder data during online transactions. 
2. Tokenization: Replace sensitive card information with non-reversible tokens to ensure security even in the event of a breach. 
3. Registration: Require customers to register their cards online, enabling features like PIN setup for additional security. 
4. Access controls: Restrict employee permissions to activate or reload cards using role-based access systems.

Investing in these methods reduces vulnerabilities and  deters fraudulent activities. 

What is the most secure way to send gift cards? 

The best way to send gift cards securely depends on whether the card is physical or digital: 

• For digital cards, use encrypted email or your official app. This ensures that the delivery process is safe and difficult for scammers to intercept. 
• For physical cards, choose tamper-proof packaging and reliable, trackable shipping services. Include instructions for recipients to report suspected tampering immediately. 

By securing the delivery process, you can reassure your customers that their gift cards are safe. 

Can gift card use be tracked? 

Yes, tracking is a key component of fraud prevention. Integrated POS systems enable real-time tracking of activations and redemptions, allowing you to detect unusual patterns quickly.  

Additionally, registered gift cards provide a direct link to customer accounts, offering greater traceability especially when doing your gift card taxes and gift card accounting. Invest in analytics tools that flag suspicious trends, such as bulk redemptions or sudden balance changes, for best results. 

Why is customer education important in preventing fraud? 

Educating customers about potential scams is one of the most effective ways to prevent fraud. Many scams rely on customer negligence, such as sharing card details with scammers posing as trusted businesses. 

By offering simple tips—like reminding customers never to share PINs and purchasing gift cards only from official sources—you empower them to protect themselves. This reduces fraud and builds trust and loyalty in your brand.

What is an example of card-present fraud? 

An example of card-present fraud is clone card usage. A scammer uses a skimming device to copy the information from the magnetic stripe of a legitimate physical gift card. 

The copied data is then used to create a duplicate card that appears authentic. For instance, a fraudster might skim card details at a compromised point-of-sale (POS) terminal. 

Later, they use the cloned card in-store to purchase high-value items or redeem balances before the original cardholder notices. Preventing this type of fraud requires secure POS systems, real-time transaction monitoring, and periodic checks to ensure no tampering with card readers or other payment equipment.

Keep Your Restaurant Up to Date 

Dealing with gift card fraud can be tricky, but employing the right preventative methods can protect your restaurant. By using strong security like encryption and keeping a close eye on transactions, you make it much tougher for fraudsters to get what they want. Furthermore, training your staff well and using technology wisely is most important.  

Ready to acquire further assistance? Try Paytronix guest management solutions and turn your restaurant into a trusted platform for loyal customers. Also, check out our Marketer’s guide to gift card strategies—it’s packed with insights to help you leverage these valuable tools for your restaurant’s success. 

Remember, every step you take to prevent fraud not only protects your earnings but also keeps your customers’ trust. So, keep your defenses strong, and make sure every gift card brings a smile, not a problem.