How Valentine’s Day exposes consumers to prepaid fraud

Like all times of the year when consumer spending surges, Valentine’s Day is a red-letter day for financial criminals.

Romance fraud, cyber scams and money laundering all tend to spike during periods of the year when criminals can disguise their activity among heightened online spending. 

Among the instruments that many of these criminals favour for laundering funds at this time of the year are prepaid vouchers and cards.

The factors that make these instruments so powerful as a means to extend financial inclusion and so simple to offer as a gift make them just as appealing to cybercriminals.

They are flexible, portable, convenient and transferrable, quite often without being tied to any person’s account or identity.

While they make gifting and e-commerce simple in use cases such as retail, telecoms, travel and gambling, the lack of monitoring makes them equally useful for criminal networks as a store of value.

The hidden cost of prepaid gifts

The anonymity and global reach of prepaid instruments have made them a favourite tool for criminals.

Prepaid cards can be purchased in bulk with illicit funds, sold online, or used to buy and resell goods to launder cash. They can also be converted into in-game currencies or digital assets and then exchanged for cryptocurrency or cash, with each step further obscuring the money trail.

Elliott explains: “Prepaid instruments are not inherently risky, but when they are treated as low-risk and left unmonitored, they become one of the easiest ways for criminals to move and disguise illicit funds.”

Fraudsters exploit the moments when people are naturally generous or trusting. Valentine’s Day, with its surge in gifting, is an obvious example: victims may be persuaded to send vouchers for a supposed emergency, last-minute gift, or romantic gesture - unaware that the cards will be monetised anonymously.

LinkedIn scams operate on exactly the same principle of trust, but in a professional context.

A fraudster might spot that someone has just started a new job and send a message offering to purchase staff rewards or incentive vouchers on their behalf.

The employee, wanting to be helpful or accommodating, transfers the cards, which the criminal then converts or sells, adding another layer to the laundering process.

In both cases, criminals are exploiting goodwill and social norms - whether the desire to celebrate, help a colleague, or respond quickly to a request - to move illicit funds. Over time, unsuspecting individuals may even become part of a mule network, earning small commissions for buying, transferring, or redeeming vouchers. This creates a highly effective, global system for moving money, using everyday generosity (seasonal or professional) as a cover.

No crime left unturned 

As these examples show, greater regulatory scrutiny is needed across the prepaid payments ecosystem. Protecting consumers from these scams cannot sit solely with retailers, fintechs, or traditional banks.

Telecommunications providers and digital platforms - where many prepaid scams are initiated or coordinated - also hold critical signals that could help identify red flags earlier. Understanding the typologies that exist within prepaid flows across this wider ecosystem would be a vital first step.

Typical high-risk behaviours must be documented and actioned in relation to compliance risk assessment frameworks.

Companies should be on alert during high-volume seasons, monitoring prepaid vehicles more closely and educating consumers about common signs of digital scams.

Strict identification protocols should be mandatory when onboarding merchants, vendors and marketplaces for promotional gifts. Lax Know Your Customer (KYC) processes are the exact loophole criminals are exploiting. A lack of data about beneficiaries, together with complex business structures, allows criminal networks to thrive.

It is actually a myth that prepaid cards’ money trails are untraceable.

They are just unmonitored. With a greater focus on anti-money laundering systems, merchant data and oversight, financial institutions and retailers will be able to know exactly where prepaid money goes.

Making questionable spending traceable

To solve the challenges around prepaid scams and money laundering, we need to be proactive. Artificial intelligence (AI)-powered platforms offer us the ability to keep up with the pace and scale of criminal activity.

Modern Anti-Money Laundering platforms enable institutions to monitor prepaid transaction data (and their anomalies).

For prepaid vendors, red flags include excessive card ordering or overly frequent top-ups, especially if certain thresholds are surpassed. Meanwhile, financial institutions should look out for tiny withdrawals at high scale or cards only being used for large deposits or in foreign currencies.

Mapping metadata about purchases, activations, resales and used devices in real-time will help match transactions to identities.

Offenders can be traced and flagged ahead of laundering funds, reducing the frequency of their efforts and their ability to repeatedly exploit victims.

Romance-based scams are commonplace and will get worse if KYC and AML processes do not take the risks of prepaid systems more seriously. It is up to an ecosystem of fraud-stoppers to provide a safe environment where gifting can remain an act of kindness rather than a loophole for criminal activity.

Bradley Elliott, CEO of Anti-Money Laundering (AML) platform RelyComply.

BUSINESS REPORT