Top 5 prepaid card fraud scams

Best practices for mitigating fraud, safeguarding reputation and ensuring a good customer experience

The prevalence of fraud in the prepaid card space is low but persistent. Consumers rely on prepaid cards for a variety of reasons. They're confident of a card's safety because it's not tied to their personal information or banking. But the fact that prepaid cards aren't attached to a bank account actually means that customers who become fraud victims have no legal recourse and have particularly difficulty in uncovering the crime. Addressing fraud in this space helps ensure a good experience for the prepaid card customer and safeguards your organizational reputation.

Free paper: Balancing Fraud Detection and the Customer Experience

Here are five popular prepaid card scams and some best practices for mitigating them:

Telephone scams: A fraudster calls into a merchant who sells GPR (general purpose reloadable) products. The fraudster says that he's calling from the mobile payment provider and needs to test the clerk’s terminal. When the clerk resists, the fraudster persists, saying that this is a necessary protocol that will get the clerk fired if he doesn’t comply. The clerk relents and gives the fraudster a pin number for a GPR, which the fraudster immediately loads into a card on his end and then cashes out at an ATM that he's standing beside. He tells the clerk that the signal from the store’s terminal is weak or distorted, and that they'll need to run the test again. This process happens three or four times until the fraudster has amassed $2000 to $3000. The fraudster hangs up and the clerk realizes that he's been scammed.

How to mitigate this scam – Training and velocity monitoring.

Card swaps: A fraudster enters a location with branded prepaid cards or GPRs that are hanging on racks in card packs. The fraudster steals the card packs, uses a razor blade to open a card pack and replaces the real card with a fake card. He then takes the card packs with the fake cards back to the location and waits for the fake cards to be activated. When they are activated, the fraudster redeems the funds from the cards.

How to mitigate this scam – Design a tamperless package and train clerks to detect this activity.

Packaging compromises: Fraudsters take a gift card or prepaid card from the rack and skim (copy the magnetic swipe data) from one card to another card and then wait for skimmed card to be activated. Once it is activated, they have an exact copy of the activated card. Skimming is very difficult to determine.

How to mitigate this scam – Redesign packaging so that the magnetic stripe cannot be accessed without destroying the packaging. Also, put the last four numbers of the card on the package and ensure the clerk compares those numbers to ensure the integrity of the card.

Method of tender: If you accept prepaid cards for payment, chances are you'll get stolen cards presented for payment.

How to mitigate this scam – Train your retailers on how to protect the card acceptance process at the point of sale by: 1) having the card present for the transaction, 2) getting a signature from the sales clerk, and 3) getting an electronic authorization. If the retailer completes these steps, even if the card is stolen, the retailer won't lose the money.

Tax fraud: Criminals complete tax returns using fraudulent identities and have the proceeds forwarded to their GPR card.

How to mitigate this scam – Match the name on the GPR account to the name on the IRS return.

Creating a frictionless experience for consumers is very important to organizational reputation. The final best practice is to step in very quickly to investigate and resolve any losses.

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