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Tips for Fraud Prevention in Loyalty Programs- Explained

  • Posted on September 22, 2022 by Robert
  • Reading time about 6 minutes
Fraud Prevention in Loyalty Programs

We all know the growing importance of loyalty programs in almost every business sector and the role they play in attaining positive business goals. With the rise of loyalty programs, the case of fraud in loyalty programs has also increased tremendously. Research conducted in recent years says loyalty program fraud has increased by up to 89%, involving a huge amount of monetary loss in businesses.

If your reward program is vulnerable to fraud, your business may lose the trust of customers due to the loss of their data. And even if these hackers are punished after the exploit, there is a chance that might turn their backs on your brand. For all these reasons, it is important to ensure that you work with a trusted and renowned Loyalty Program Platform that helps in building robust solutions aligned with advanced fraud detection measures.

What is Loyalty Fraud &what are the Things to Know?

Loyalty program fraud can be defined as the situation when someone abuses the framework or rules of your rewards program for personal benefits. They can be customers who are trying to use one-time coupons multiple times or employees illegally handing out reward points to their friends or families. One thing that program owners must not forget is that loyalty points and rewards hold real monetary value and exploiting them can cause serious harm to your business.

Here are some of the common ways of fraud in loyalty programs-

– Knowing vs. Unknowing Fraud

In knowing fraud cases, reward program members just stumble into an exploit not knowing that they are using the program in the wrong way. In an unknowing fraud case, members go out of their way to identify loopholes & vulnerabilities of the system for misuse of data.

– Internal vs. External Fraud

Internal fraud happens when your employees break the rules of the program and give free rewards to family & friends. On the other hand, external fraud happens when outsiders i.e. hackers and customers commit fraud.

– Small Scale vs. Large Scale

In small-scale fraud cases, the fraud is committed by a single person or a small group and may rack up hundreds of dollars in rewards & discounts. In the case of large-scale fraud, the fraud is committed by a large group of members.

One of the most common fraud cases is employee fraud! Research by Forrester says internal incidents were the 3rd most common cause of breaches in 2020. For example, cashiers skip asking customers to use their loyalty cards, instead, they use their account info to avoid spending extra time. This is the case of stealing from not just customers but also the brand. This may lead to customers losing trust in your brand. Another case is where staff members transfer points from buyers & they claim rewards for themselves. .

Best Techniques for Fraud Detection & Fraud Prevention in Loyalty Programs

Without the help of loyalty technology that is robust enough to build customized anti-fraud use cases, it is quite impossible to stop fraudsters and hackers in their tracks.

Here are some of the ways that show how marketers, CRM executives & program managers can detect & prevent fraudulent activities-

– Custom Fraud Detection Workflows

Using the workflows of Novus, users can easily create custom rules and campaigns with built-in counterbalances against fraudsters. Additionally, program managers can add or modify all the rules that help in determining when the system flags customers as fraudulent and setting up notification triggers in such scenarios.

This feature enables businesses to fully customize the logic behind the loyalty programs to overcome and find solutions for the newfound fraud scenarios.

– Set Strict Redemption Criteria

Another way for fraud prevention in loyalty programs is to ensure making use of advanced protection to the next level and set redemption criteria for rewards to work only if the requirements are met.

Having the capability to set redemption criteria for reward redemption to prevent hackers and fraudsters from misuse of coupons and exploiting the system intentionally. For instance, in the case of sign-up rewards, it is made clear to the users that the reward can only be received after making a minimum purchase ensuring that they don’t take advantage of the rewards with duplicate accounts.

– Return Policies with Pending Period

Another way to prevent members from misusing reward points is to use a pending period, which means customers won’t receive any reward points until the possible return period gets over. Using this will eliminate any problems involving product returns.

With the loyalty platform that has this feature, you give users a chance to monitor a time window for the pending list and identify the points issued by hackers & fraudsters. This pending events module will help in the successful completion of the customer activity before rewarding points.

– User Groups & Access Privileges

This is one of the best ways to avoid the chance of employee fraud! All you need to do is check if the loyalty platform you plan to use is offering access management or not. Novus comes with a capability that helps businesses to set up user group hierarchies and access privileges for platform users.

You get the full freedom to decide which employees must be given access to which features help to prevent untrustworthy users from taking illegal actions like adding points without reason. This ensures that no actions are taken without the supervisor’s knowledge.

Final Takeaways

We are now aware that it is not an easy task to detect and prevent loyalty fraud as the potential for fraud increases with the evolution of technology & reward systems. That is why; one must always focus to be always one step ahead of fraudsters by using a flexible and robust technology that can be updated as per the changing scenarios.

Novus is an all-in-one loyalty management platform that is capable of building any custom solution aligned with fraud prevention in loyalty programs. From advanced Loyalty Campaign Management to technologies that can secure loyalty programs from fraud, we have every feature that a business needs to grow through loyalty solutions. To know more, book a demo with our top loyalty experts today.

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