Loyalty Blogs

Loyalty Fraud is on the Rise- Find Out Why

  • Posted on November 29, 2022 by Robert
  • Reading time about 5 minutes

With the increasing demand for loyalty programs in the marketing sector, there is a growing concern regarding customer loyalty fraud. This means more and more loyalty programs are becoming an attractive target for digital fraudsters. Though loyalty program fraud is not a new thing, we must find an effective way to make your loyalty program beneficial not just for your business but also for your customers.

There will be people who will always try to hack or game a program when benefits and rewards of value are at play. In this blog, we will learn why there is an increasing case of loyalty fraud and how the right customer loyalty software can be used to avoid this.

Reasons behind the Increasing Cases of Loyalty Fraud

As we witnessed the increasing development of tech advances, we can also see that cybercriminals are coming up with more nefarious activities with more fraud cases than it was in 2019 or 2020.

Here are some of the main reasons for increasing fraud cases-

– Inactive Loyalty Program

Customers often neglect their loyalty program accounts. Leaving accounts unattended for a long time can be one of the main reasons that enable fraudsters to take advantage of the missing rewards or funds & making them win big.

– Changing Customer Behavior

Customers now prefer eCommerce & online shopping as their main channels to shop, which means the number of online transactions has increased tremendously. This provides more opportunities for fraudsters & cybercriminals to conduct a fraudulent activity through mobile wallets in loyalty programs.

– Programs are often Overlooked

Many program members feel that their loyalty program accounts are not at high risk and they use a simple password to log on to their loyalty program accounts. Customers should make use of strong passwords with tough combinations as their loyalty program may contain sensitive data. Many ignore the fact that their profiles contain lots of personal information like contact, address, email, etc., and in many cases, financial data too, which can be collected by fraudsters & sold on the dark web.

– Minimal communication Between Buyer & Seller

Another reason is that loyalty points have real cash value, which means they can be exchanged through the dark web without proper communication between buyer and seller, lowering the risk of getting caught. Also, they are redeemed for untraceable things like gift cards, which increases the appeal of fraudsters.

Types of Loyalty Fraud That Brands Must be Aware Of

Here are some of the most common cases that show fraudsters can take advantage of your loyalty programs-

– Account Takeover

This is a form of identity theft in which the fraudster or the cybercriminal takes access to account information via a data breach, malware, or phishing for the purchase of misuse or unauthorized transactions.

– Internal Fraud

This is the type of fraud case where the crime is committed by internal employees such as site staff, program administrators, center agents, partners, and integrators who exploit their “insider” privileges for misuse.

– Enrollment Fraud

This is the common fraud case that is directly related to accounts that are created solely to commit the crime.

How Brands Can Deal with Loyalty Fraud and Gaming?

– Formalized Standard Operating Procedures

Brands that have encountered fraud cases are usually the ones that don’t have standard operating procedures. And many firms only realize the issue of loyalty fraud after facing some bigger loyalty fraud incidents. The best way is to build a formal SOP around loyalty fraud prevention, not just to handle big fraud cases but also for everyday incidents.

– Set of Rigid Rules to Avoid Employee Fraud

Another biggest concern is internal fraud cases as the average impact of employee fraud can be more severe. Companies that hire a huge number of frontline staff can become the biggest source of fraud.

However, to reduce the risks of employee fraud, we recommend brands create a set of rigid rules and limits that prevent straightforward fraudulent actions. Make sure that you set targeted reports and KPIs that can track and measure site staff activities for picking any deviations from the form.

Key Takeaways

As we can figure that loyalty fraud prevention can be done with the right planning, brands must implement preventive measures after thorough research to ensure that they catch issues before it is too late. The costs associated with a single security breach can be in terms of millions, which is not just about monetary loss but also the brand’s reputation as a whole.

Novus, an exclusive rewards program platform for businesses across the world enable them to incorporate the best technologies like AI and ML to build customized loyalty solutions with robust loyalty fraud detection system. They keep their focus on detecting fraudulent activities by keeping track of every transactional anomaly in customers’ behavior, which helps to prevent any further damage. To know more about Novus & its loyalty fraud detection capabilities, book a demo today!

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