Buying gift cards with credit cards gets easier


EMV chip card readers have cut retailers’ risk from fraudsters using counterfeit cards to buy gift cards. As a result there are fewer restrictions on gift card purchases.

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If you are buying a gift card as a last-minute holiday gift, they are easier to purchase with credit cards than a year ago.

The reason for the change: More retailers have payment terminals that read chip cards.

“Merchants that are not yet enabled to accept EMV chip cards are at a higher risk of fraudsters using counterfeit cards to purchase gift cards,” says Randy Vanderhoof, director of the U.S. Payments Forum.

“With 55 percent of spend now on chip cards and 96 percent of the top 200 merchants now accepting chip payments, there are fewer merchants restricting sales of gift cards for fraud reasons this year,” he says.


Gift card purchase limits cut fraud, but hamper consumers

In 2016, concerns about fraud led some merchants – notably merchants that had not switched to EMV – to restrict or bar the use of credit cards to purchase gift cards. Instead, shoppers sometimes had to pay with cash or use debit cards with PINs.

“For example, some merchants required high denomination gift cards to be purchased with cash,” says Colleen Dorwart, chair of the Retail Gift Card Association.

“Consumers who may not have had the cash on hand at the time of purchase may have had to take an extra step as a workaround, and not all of them completed the purchase if they had to go withdraw cash from an ATM.”

At the end of 2016, 14 percent of midsize and large retailers did not have EMV in place, according to the National Retail Federation (NRF). In 2017, 99 percent of midsize and large retailers and 81 percent of smaller retailers expect to have EMV in place by the end of the year.

“Long before EMV, criminals with a counterfeit credit card would purchase gift cards as a means of money laundering.”


Gift cards a favorite among fraudsters

Gift cards, in addition to being coveted holiday presents, are also popular among criminals who buy them with counterfeit credit cards, says NRF spokesman J. Craig Shearman.

“Long before EMV, criminals with a counterfeit credit card would purchase gift cards as a means of money laundering, taking that counterfeit credit card and turning it into an actual legitimate gift card,” he says.

Crooks will use a stolen credit card – or (in the case of online purchases) a credit card number – and quickly buy a bunch of gift cards or prepaid cards, before the stolen or compromised credit card is frozen or deactivated.

These illegally obtained gift cards can then be sold on gift card exchange sites, essentially giving the scammer a way to turn a stolen credit card into quick cash.

A criminal enterprise could send 10 people out every day to each buy 10, $100 card gifts. “That’s $10,000 in fraud risk,” Shearman says.

Video: 4 ways to wrap gift cards

Although EMV made it more difficult to counterfeit credit cards, the in-store fraud liability shift in October 2015 opened another window for criminals to exploit – chargebacks.

“Once EMV came along, some banks became lax about investigating disputed charges when the retailer did not have chip readers,” Shearman said. “Criminals quickly became aware of that.

“Retailers started seeing an increase in the number of gift card purchases that turned out to be made with fraudulent credit cards at the end of 2015 and early 2016.”

“EMV rollout in the United States was a disaster,” said Greg Ferrara, senior vice president government relations and public affairs at the National Grocers Association. “Chargebacks were a major issue and one that our members continue to monitor.”

Some gift card purchase limits remain

A few retailers still have restrictions on gift card purchases, so check out the policies of the stores where you intend to make a purchase. Some grocery stores may require gift card purchases to be completed at the customer service counter, adds Ferrara.

“Fortunately, honest consumers understand that certain, sometimes inconvenient steps, are implemented for their protection since fraudsters tend to exploit businesses and shoppers alike,” Dorwart said.

See related: 7 things you need to know about gift cards, Gift cards: What to do when a retailer files for bankruptcy, Gift cards: Fees, expiration regulated by U.S. laws, Discounts: 8 ways to get gift cards for less, How to replace a lost or stolen gift card


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