Dive Brief:

• Gift cards like iTunes and Google Play, and reloadable cards, like MoneyPak, are increasingly the payment methods of choice for fraudsters seeking to scam consumers, reported the Federal Trade Commission (FTC) this week.
• The scammers instruct the victim to go to a specific store – such as Walmart, Target, Walgreens or CVS – and buy a specific kind of card – such as iTunes or Google Play – and then provide the PIN number from the back of the card, said the FTC in its Consumer Protection Data Spotlight report. The preferred cards have changed over time, but iTunes has been the top choice by far since 2016. Google Play cards only started appearing on the list this year. Such cards are favored by the fraudsters because they can use them anonymously, get cash quickly from them, and the transactions cannot, in most cases, be reversed, said FTC.
• The number of reports of people using these cards while losing money to a scam has increased 270% since 2015. From January to September of this year, these cards were the payment method reported in 26% of the fraud reports to the FTC compared to 7% in 2015.

Dive Insight:

Retailers have become the unwitting accomplices of scammers who demand that they be paid by gift cards or reloadable cards while committing a fraud. The number of these cases has increased nearly threefold in three years, the FTC said.

The con artists are usually precise in their instructions to victims, telling them the specific stores to go where they are to buy specific cards. The retailers are not culpable, and there is little they can do to prevent this happening, but they have become part of the story. The cards are nearly untraceable and easily converted into cash.

Retailers themselves are increasingly the target of fraud, with attacks rising 13% last year, according to the 2018 Fraud Attack Index from Forter. Fraud involving gift cards, and other types of digital goods, went up 167% from Q1 2017 to Q1 2018. Gift cards are a target because of a streamlined purchase process where less information is required than when buying other goods, said Forter. Gift cards are increasingly the direct target of cybercriminals by such methods as cracking the serial numbers, reported Flashpoint.

In the U.S., people lost $40 million in scams involving this type of card payment in 2017, which is up from $27 million in 2016 and $20 million in 2015, the FTC reported. The losses were already $53 million as of September of this year. The median loss per incident, based on all reports in the FTC’s Consumer Sentinel Network database that identify gift or reload card as a method of payment, is $500. 

In four out of five cases, when a fraudster demands a gift or reload card for payment, these are imposter scams, where the scammer poses as a known business, a family member, a friend, or a government agency, the FTC reported.

“Familiarity with these tactics and awareness of the prevalence of gift cards and reload cards as a method of payment for fraud may help people to recognize and avoid a wide range of scams,” the FTC said. “When someone demands to be paid with a gift card, that’s a scam.” Victims are often told to buy cards from several different stores so as not to alert employees and to not talk about why they are buying the cards. FTC urged immediate reporting of such incidents.