Gift card fraud is on the rise, but you can protect your self-care business by keeping an eye out for telltale red flags

Selling gift cards is a fantastic way to grow your self-care business. Not only do they generate revenue, but they also get new, enthusiastic clients through the door. However, some clients who buy gift cards don’t see your business as a valuable part of the community. They see it as a way to commit gift card fraud — and just maybe get a luxurious haircut, manicure, or skin treatment along the way.

The good news is that you and your staff can learn how to stop gift card fraud in its tracks. Gift card fraudsters tend to fall back on a few predictable techniques. Once you know how to spot these common red flags, you can avoid wasted time, broken trust, and costly credit card disputes. That way, your gift cards will go to friends and family members of loyal clients rather than petty crooks.

What is gift card fraud?

Gift card fraud is big business, causing $217 million worth of damage in 2024 alone.

Here’s an example of what might happen:

• A fraudster steals credit card information (via physical theft, identity theft, phishing, dark web databases, etc.)

• They use the stolen card to buy gift cards from your business

• You and your staff provide services for the fraudster and/or their friends

• A credit card provider discovers what’s happening and cancels the card

• Your business gets a chargeback (with a chargeback fee) from the credit card company

This kind of scam hurts your business three times. First, you waste time and materials (shampoo, nail polish, massage oil, etc.) that could have gone to a legitimate client. Second, you lose the money you should have earned from the transaction. Finally, you lose additional time explaining the situation to credit card companies — and possibly law enforcement.

Why buy gift cards instead of simply buying services with the stolen card? Generally, it’s because gift cards are harder to track, harder to cancel, and easier to resell. Consider a few other kinds of gift card fraud:

• Card draining: A fraudster takes a physical gift card off a shelf, redeems it online, then puts the card back. Your business winds up selling a worthless gift card to a legitimate client.

• Selling stolen cards: Instead of using gift cards on themselves, scammers sell them at a steep discount. You may or may not have canceled the cards by the time the unsuspecting purchaser gets to you.

• Reselling retail products: Organized retail crime rings steal products from stores and resell them through illegal channels. Gift card fraud is an easier alternative to shoplifting or robbery.

How to prevent gift card fraud

Check IDs and credit cards

You can often spot credit card fraud by cross-checking a client’s ID and credit card. That’s harder to do with a gift card, since gift cards don’t necessarily list a client’s name. Still, if a new client wants to pay with a gift card, asking for an ID and a credit card is still a good practice. If the names on the ID and card don’t match, that’s a red flag. If a client refuses altogether, that’s also a red flag, as they may be trying to make themselves harder to track down later. Consider making “all first-time clients must present an ID and credit card” a standing policy so that no one feels unfairly targeted.

Beware of big purchases

There are two types of big gift card transactions to watch out for:

• A single gift card with more money than any of your services cost

• A bunch of small gift cards with less money than any of your services cost

When legitimate clients buy gift cards, it’s often a way of referring friends and family members to your business. It makes sense to put enough money on a gift card for one or two of your services, plus a little extra for tax, tip, and a few retail products. A fraudster, on the other hand, might make a huge gift card purchase and try to spend as much of it as possible in one session. They could also buy a ton of less valuable gift cards and sell them to as many unsuspecting clients as possible. 

Pay attention to timing

While legitimate clients tend to buy gift cards whenever it’s convenient, fraudsters have a more predictable schedule. They may:

• Buy lots of gift cards on your website while your storefront is closed, then resell those cards before you have a chance to notice or cancel the transaction

• Purchase expensive gift cards as soon as you open for business, then attempt to resell them the same day

• Buy gift cards for particular services and then schedule same-day or next-day appointments for themselves

The tricky part here is that legitimate clients could easily do these things, too. Not every online purchase or same-day appointment is a scam waiting to happen. But if the timing seems strange, it’s probably worth looking for other red flags, too.

Check for strange email addresses

Whether your clients buy gift cards online or in-store, you’ll probably have a chance to collect their email addresses. Those addresses can give you some clues about their intentions. Usually, email addresses are straightforward: a client’s name, nickname, or initials, perhaps with a few numbers at the end. If an email address looks like a completely random string of letters and numbers, that’s a sign it might be a burner. Also, if the email address contains a name, make sure that name matches the client’s ID and credit card. 

Watch and listen for red flags

Remember that not every fraudster is part of a complex crime ring. Some of them just want free stuff for themselves. If someone buys a gift card for themselves and uses it right away, pay attention to how they act and what they say during their appointment. Inexperienced scammers make their lies too elaborate or overshare. If they’re moving away tomorrow, or about to take a long European vacation, or just passing through town, you may want to press them a little further — and you’ll definitely want to double-check their ID, credit card, and email address. If you work with clients frequently, you can usually tell if something feels off. Don’t ignore your gut instinct.

If you’re not proactive about gift card fraud, you could find yourself facing costly credit card chargebacks. On the other hand, if you treat every gift card purchase as a potential scam, you might put new clients on edge and lose their business. If you’re calm, polite, and just a little bit skeptical, you’ll find the right balance. Then, you can focus on turning gift card clients into regulars.