What is loyalty program fraud and how can you prevent it?

Loyalty programs are essential for customer engagement. However, this technology has spawned a new threat - loyalty fraud. 

 

In this article, we will discuss what loyalty fraud is (along with examples to watch out for!) and how to detect and prevent it.

 

What is loyalty fraud?

Your virtuous customers are not the only ones eyeing your loyalty program perks. 
 

Loyalty fraud occurs when dishonest individuals exploit vulnerabilities in your program to gain unauthorised access to rewards and benefits. This is especially damaging because it can undermine the integrity of your program. 

 

Examples of loyalty program fraud

1

Account takeover

Fraudsters gain access to legitimate accounts and use their accumulated points or rewards

2

Fake account creation

Creating fictitious identities to open new accounts and redeem perks. This means a loss of genuine customer engagement. 

3

Transaction manipulation

Fraudsters manipulate transactions or other activities to artificially increase the number of loyalty rewards earned. This reduces loyalty currency and devalues the program.

4

Fraudulent receipt uploads

For loyalty programs with receipt scanning data capture, users could try to upload manipulated or duplicated receipts in an attempt to earn more loyalty rewards.
 

5

Referral collusion

Multiple individuals conspiring to create fake accounts or share referral codes illegitimately to gain perks.
 

6

Account hacking

Unauthorized access to customer accounts through hacking methods, leading to a loss of sensitive customer data and a tarnished reputation due to security breaches.
 

7

Coupon code abuse

Exploiting promotional codes meant for specific customer segments without meeting the criteria. 

The importance of loyalty fraud prevention

Why it matters

Loyalty fraud can result in financial losses, and also damage the trust that customers place in your program. Preventing fraud is crucial for the longevity and success of your loyalty initiatives, as well as your customer relationships

 

Loyalty technology and security:

Thankfully, robust loyalty technology has all the measures in place to ensure you won't have to deal with the headaches of loyalty fraud…
 

Our system has real-time monitoring with advanced analytics and machine learning, so it can detect unusual patterns or activities in real-time. 

 

With technologies such as receipt scanning, you can be confident that our system will protect you against fraud. When a customer scans their receipt using our technology, it will get sent to a manual reviewer if any unusual activity or detail is detected. 

 

Our receipt scanning technology detected over 5,000 fraudulent uploads for PepsiCo’s marketing campaigns

 

And if you’re using card-linking technology, you know that security is crucial when dealing with payment cards. That’s why our system features full PCI compliance and card tokenisation. Both you and your customers can rely on our tech to keep all data safe and secure. 

 

On top of that, our technology is constantly updated and thoroughly checked to ensure our client’s programs stay resilient. 

Tips to prevent fraud and protect your loyalty program

1 - Educate your customers

Communication is key - make sure your customers understand the importance of secure account practices. For example, encourage strong password guidelines to prevent exploitation.  
 

2 - Choose secure technology

Always choose a technology partner that has the appropriate security measures in place - especially when dealing with customer data, card payments and transactions. With robust technology, you don't need to worry about fraudsters. Instead, you can focus on what you do best - your business and building customer relationships.

Loyalty programs are a powerful way to engage your customers, but loyalty fraud poses a threat. From account takeovers to coupon code abuse, it’s crucial to stay vigilant.

 

Our high-tech solutions, like real-time monitoring and robust receipt scanning (spotting >5,000 fraudulent uploads for PepsiCo) keep fraud at bay.

 

Choose a tech partner that will protect your rewards program and build trust with your customers. It’s a non-negotiable for loyalty success. 

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Helen Walker

Helen Walker

Senior Content Marketing Executive

Helen is our Senior Content Marketing Executive. She shares valuable information about the Future of Loyalty and will keep you up to date on the latest industry insights...

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Digital Loyalty
Tech
Technology
Customer Satisfaction
Receipt Scanning