#10: Holiday Fraud Surge, Gift Card Scams, and Donation Fraud

The holiday season is in full swing, and with it comes the inevitable rise in fraud. From refund abuse to gift card scams, bad actors are seizing the moment when shoppers and donors are most active. But beneath the familiar headlines lies a deeper question: why are these tactics so effective, and how can we rethink our approach to stop them? Let’s dig in.

NATE'S TAKE - Top Three This Week

1. Holiday Fraud Surge: Retailers Are Feeling the Pressure
2. Gift Cards: Simple Products, Sophisticated Scams
3. Donation Fraud: When Generosity Meets Exploitation

1. Holiday Fraud Surge: Retailers Are Feeling the Pressure

Every holiday season, we brace for the spike in fraud. Online shopping volume has grown exponentially, and so has the complexity of fraudulent tactics. The global cost of refunds and returns abuse, for example, has reached new heights, driving $394 billion in global fraud losses, with $111 billion tied to U.S. retailers.

While retailers are focused on delivering seamless customer experiences, fraudsters know this means policies will likely err on the side of generosity, especially during the holidays. Opportunists and prolifics alike will exploit lenient policies and loopholes designed for customer convenience, while teams tasked with spotting fraud are stretched thin, relying on outdated detection systems that fail to connect patterns across customer journeys.

Refund abuse isn’t just a policy issue—it’s a visibility issue. By linking behaviors like frequent returns or refund patterns during peak periods, you can spot abuse without sacrificing customer trust, and empower your customer service teams to add friction as a deterrent in real-time when necessary.

RELATED: Holiday Fraud Is Here: What Retailers Can Do Right Now to Stay Ahead

2. Gift Cards: Simple Products, Sophisticated Scams

Gift cards are a holiday staple, but they’ve also become one of the easiest ways for fraudsters to steal money. Recent reports highlight how scammers are ramping up their efforts, often preying on victims through unsolicited calls, emails, or messages asking for payment via gift cards. These scammers create a false sense of urgency—posing as government officials, employers, or even loved ones in distress—to convince victims to hand over the codes from gift cards they’ve purchased.

This is the one time of year where it's potentially legitimate for a shopper to buy multiple gift cards for their loved ones, which makes the season more ripe for fraudsters who can be dangerously convincing. Victims often don’t realize they’ve been targeted until it’s too late, and once the funds are gone, recovering them is nearly impossible. Even more troubling is that scammers frequently target vulnerable populations, such as seniors or people unfamiliar with these tactics.

Retailers must improve physical card security and educate customers about verifying cards before purchase. For fraud teams, monitoring gift card transactions for patterns like rapid activation and depletion can help flag suspicious activity. For consumers, the best defense is skepticism: if someone asks for payment via gift cards, it’s almost certainly a scam.

3. Donation Fraud: When Generosity Meets Exploitation

The season of giving is also when fraudsters ramp up donation scams, preying on goodwill to test stolen credit cards. These schemes often start small, with fraudsters making micro-donations to real or fake charities to validate card details without triggering red flags. Once validated, they escalate to larger purchases elsewhere.

These fraudulent tests can create confusion if genuine donations are also being made. Imagine reviewing spikes in traffic or seemingly charitable donations, only to find a barrage of unauthorized micro-transactions mixed in. Fraudsters rely on this overlap to fly under the radar, knowing the season’s high volume of transactions makes it harder to spot discrepancies.

This highlights the need for better defenses, like transaction monitoring that can flag patterns of micro-donations or honeypots that identify malicious intent. Fraud fighters should focus on correlating data across donation flows to identify unusual clustering of small transactions and deploy tools that can differentiate between genuine donor activity and card testing attempts. By proactively analyzing these patterns, fraud teams can stop card testing attacks before they escalate, ensuring that the true spirit of giving isn’t undermined.

===

That’s all for this week! For more insights, follow us on LinkedIn or X, and if you want to learn more about what we do, visit www.specprotected.com.