Card fraud remains a key challenge in South Africa’s payment industry. Alongside incidents such as robberies at bank branches and ATMs; Card Not Present (CNP) fraud is particularly prevalent in the country, accounting for 68% of gross fraud losses in 2023. Adding to this picture, another form of card fraud is also emerging as an area of concern for cardholders.
Gift card fraud, in particular, has become a serious issue. Where scammers use social engineering tactics to persuade victims to reveal redemption codes on the back of a gift card, is pervasive in South Africa. One reason for the growth in this type of scam is that the gift card market in the country is projected to grow from $1.5 billion in 2025 to $2.27 billion by 2029 at a CAGR of 10.9%.
Gift cards, which can be redeemed both in store and online, may be increasingly attracting the attention of criminals, but there's now a better way for retailers and organisations to manage these schemes. Digital gift cards offer better protection against fraud and their growth has in part been spurred on by the government's introduction of regulations that increase consumer protection in the financial services sector.
From the consumer perspective, digital gift cards represent a flexible and personalised way to purchase goods. Digital gift cards are delivered directly to a consumer’s phone, residing in a digital wallet that can only be accessed through biometric recognition, or by inputting a code known only to the owner. Unlike a physical card, which can be lost or stolen, if a smartphone falls into the hands of a bad actor, a digital gift card is much harder for the criminal to fraudulently redeem.
And with South African citizens increasingly shifting their preference towards digital transactions and e-gifting, digital gift cards make sense. Consumers can give digital gift cards to friends and family without having to meet them in-person or post items in the mail.
Major retailers in South Africa are expanding their digital gift card ranges. For retailers looking to streamline their operations, digital gift cards are a logical option; there’s no physical inventory that they must store, secure and distribute, reducing overheads. They are also a more environmentally friendly option due to there being no plastic waste, as is with physical cards that are used once and then thrown away. And they can also help retailers foster loyalty – digital gift cards delivered instantly to a customer’s device are the ultimate in convenience.
Major corporations are also increasingly using digital gift cards in their incentivisation programmes, as they offer a simple way to disburse rewards at scale. Where monetary gifts might be inappropriate, they can use digital gift cards instead, matching their employees’ preference for convenient and flexible rewards.
Digital gift cards come with built-in protection that makes them far harder to exploit than their physical counterparts and because they can’t be physically tampered with, they’re nearly impossible to duplicate. On top of that, they sit behind the additional security layers of modern smartphones, adding another line of defence.
Another point, is the value stored on a digital gift card can also be limited, which prevents fraudsters from draining an entire account; and thanks to tokenization, digital gift cards don’t carry identifiable numbers that criminals could use to clone or misuse.
Finally, as many digital gift cards are managed through centralised platforms, unusual or suspicious activity can be detected quickly and shut down before any real damage is done.
Digital gift cards are a sustainable and convenient alternative to physical cards, offering South African banks, retailers and businesses a smarter way to engage customers. At Paymentology, we are experienced programme managers, who work alongside organisations to design and deliver digital gift card programmes tailored to their specific needs.
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