Loyalty Fraud: A Rising Threat to Consumers and Businesses

Share:
An emerging threat to loyalty programs is posing a significant threat to consumer trust, credibility, and ultimately revenue.
Customer Experience

Loyal customers are crucial to any business; they promote positive brand image and generate revenue. Successful brands understand the importance of creating and maintaining loyal customers, and a loyalty program, with rewards like gift cards, merchandise and travel, is often a big part of nurturing and engaging with that loyal base.

Not to mention, consumers enjoy being rewarded for their brand loyalty. So much so, that four in five Americans continuously collect rewards points for airline, hotel, and retail purchases.

The rising threat of loyalty fraud

There is, however, a rising threat to loyalty programs that has the potential to outweigh the benefits of those rewards. A single instance of loyalty fraud could turn those loyal customers away from the brands they love, and even worse, cause them to spread the news of their negative experience.

Loyalty fraud can be carried out in varying degrees-from thieves pilfering points and fraudulent travel redemptions, all the way to hackers stealing credit card and member identity data. Loyalty programs large and small, from travel to retail, are at risk without proper protections. In fact, 72 percent of loyalty program managers say they have experienced issues related to fraud.

Rewards: Real value worth protecting

Reward points and miles are worth an estimated $48 billion in the U.S. alone, making loyalty programs an attractive target to hackers and thieves. Gartner Security Analyst Avivah Litan told NBC News, "Fraud is moving away from banks and into big e-commerce companies. Criminals are learning how to turn rewards programs, points, and prepaid cards into cash."

Loyalty and rewards programs often lack the security typically seen with credit or bank transactions, like multiple authentication steps and complex password requirements. This presents a lucrative opportunity for hackers, and a real problem for the organizations managing the programs.

What do consumers think? We asked.

Loyalty program members see their rewards as more than points earned or miles traveled. In a recent survey that Connexions Loyalty conducted through IPSOS Public Affairs of a nationally representative sample of loyalty program members, an overwhelming majority (81 percent) of Americans equate loyalty and rewards points with cash. Yet, an equal number say they have never considered the possibility of becoming a victim to fraudulent activity.

In fact, survey results revealed that one in three (34 percent) program members log into their accounts no more than once every few months, with 10 percent saying they never access their account balances. This lack of attention decreases the likelihood of detecting fraudulent activity. Many customers are unsuspecting of loyalty fraud, and because their loyalty program is backed by a trusted business, they may have a false sense of security.

Protect the consumer, protect the business.

A single instance of fraudulent activity can have a significant impact on consumer trust, credibility, and ultimately revenue. One in four loyalty members said they would cancel their reward program membership if they were the victim of loyalty fraud; 17 percent said they would stop doing business with the organization altogether.

While loyalty fraud can have serious financial repercussions, there are steps program managers can take to start protecting their customers, and their business.

What should program managers do?

  1. Monitor account activity. This includes monitoring registration, login, and transactions throughout the customer or user lifecycle. Any account activity-an email, phone number, or IP address change-should be reviewed to determine if something is out of the ordinary.
  2. Increase login security measures. A multi-factor authentication process should be used, one that requires, for example, identification of a code image in addition to inputting a password and temporary key. Strike a balance between increased security and ease-of-use, so customers feel protected, not overwhelmed.
  3. Educate rewards members. Inform members about breaches and the importance of using strong passwords, changing them regularly and logging in more frequently. This will not only help members protect themselves, but also boost customer relations by demonstrating that brands and program managers want to keep their customers protected.

Prevention is the key to staying ahead of the damaging effects of loyalty and rewards fraud; waiting to fight fraud until accounts have been compromised will cost money, credibility, and ultimately the loss of loyal customers and members. Loyalty and rewards members expect to be shielded from fraud before it happens-and they should be. After all, aren't rewards members among an organization's most valuable assets?

EXPERT OPINION
EXPERT OPINION