How gift card scam work and why can’t companies prevent it?


I read a lot about IRS scams where people get conned into sending iTunes gift cards etc. What exactly will the scammer do using those gift cards? Do they resell them? The gift cards are not cashable anyways. Also why can’t companies block such gift cards once the scam is reported?

In: Economics

Gift cards are basically untraceable, that makes it convenient for transferring them around without being tracked. On trading them, there is a very large “grey” market for buying and selling gift cards, seriously, its pretty big. And just to be clear, gift cards are designed to be given away and such (they are often given as presents) so “tracking” them sorta defeats the purpose as they don’t expect the person who buys the card to be the one to use it.

Certain gift cards from large companies like Wal-Mart, Amazon, and iTunes, and such are pretty much just as good as equivalent cash and can be traded at near face value for cash (say a $50 gift card you can sell for $48 cash).

Companies aren’t really in the business of policing their gift cards, once the card is bought, they have the money and where it goes after that isn’t their problem, and people can do whatever they want with it, its not the company’s problem, they just sell gift cards, whatever you do with it is your issue.

Gift cards are a pretty close to “cash” asset that is difficult to trace. There are a lot of people willing to buy gift cards under face value, and if a theif can even recover half the face value of gift cards purchased with stolen funds, they can still get a lot of money.

For example, if someone cashes a bad check, buys a $100 Walmart gift card, gives the number to someone across the country, and that guy uses it, Walmart basically can’t really do anything to help the victim recover their funds. And the scammer pockets a few dozen dollars or so that would be nearly impossible to trace down.