• Latest

Loyalty Fraud

June 21, 2022
The ai Corporation extends collaboration with Shell to utilise cutting-edge Autopilot Machine Learning to protect Shell Card users from fraud

The ai Corporation extends collaboration with Shell to utilise cutting-edge Autopilot Machine Learning to protect Shell Card users from fraud

September 19, 2023
Sift Named a Leader in Fraud Detection, E-commerce Fraud Detection, and Risk-Based Authentication on G2

Sift Named a Leader in Fraud Detection, E-commerce Fraud Detection, and Risk-Based Authentication on G2

September 15, 2023
VISA Amends Its Dispute Management Guidelines for Merchants

Visa Research Highlights Emerging Fraud Schemes in Retail and eCommerce

September 15, 2023
World ID and the Hidden Dangers of Self-Sovereign Identities

World ID and the Hidden Dangers of Self-Sovereign Identities

September 15, 2023
Adversarial AI fraud attacks: The ticking time bomb of fraud prevention

Adversarial AI fraud attacks: The ticking time bomb of fraud prevention

August 17, 2023
5 Rampant Fraud Tactics for Merchants and Consumers to Stay Vigilant Against

5 Rampant Fraud Tactics for Merchants and Consumers to Stay Vigilant Against

August 15, 2023
Chargeflow Secures $14m in Funding led by OpenView to Fuel its AI-Driven Chargeback Automation Solution Market Expansion

Chargeflow Secures $14m in Funding led by OpenView to Fuel its AI-Driven Chargeback Automation Solution Market Expansion

September 20, 2023
SEON Raises $94 Million Series B to Address Exponential Growth of Online Fraud

Effectiv announces additional $4.5 million in seed funding

July 30, 2023
nSure.ai Awarded Second Patent Empowering Merchants to Strike Back at Fraudsters

nSure.ai Awarded Second Patent Empowering Merchants to Strike Back at Fraudsters

July 26, 2023
Dark Web Price Index 2023: Unraveling the Evolving Landscape of Underground Trade

Dark Web Price Index 2023: Unraveling the Evolving Landscape of Underground Trade

July 24, 2023
Justt survey show more people are engaging in chargebacks in 2023

Justt survey show more people are engaging in chargebacks in 2023

July 20, 2023
Ravelin releases Global Fraud Trends Fraud & Payments Survey 2023

Ravelin releases Global Fraud Trends Fraud & Payments Survey 2023

July 17, 2023
  • Contribute
  • Contact Us
  • About
  • Join Us
  • Advertise
Friday, September 22, 2023
Merchant Fraud Journal
  • Home
  • Articles
    • Chargebacks
    • Fraud Prevention
    • Influencer Insights
  • Resources
    • Recorded Webinars
    • Podcasts
    • Vendor Directory
    • eCommerce Fraud Reports
    • Training and Certifications
    • Jobs Board
    • Associations and Non-Profits
  • News
No Result
View All Result
  • Home
  • Articles
    • Chargebacks
    • Fraud Prevention
    • Influencer Insights
  • Resources
    • Recorded Webinars
    • Podcasts
    • Vendor Directory
    • eCommerce Fraud Reports
    • Training and Certifications
    • Jobs Board
    • Associations and Non-Profits
  • News
No Result
View All Result
Merchant Fraud Journal
No Result
View All Result

Loyalty Fraud

by Bradley
June 21, 2022
in Articles, Fraud Prevention

TheDigitalArtist / Pixabay

Loyalty Fraud is when a fraudster gains unauthorized access to an account tied to a loyalty rewards program offered by a merchant. The fraudster then either takes direct advantage of the points themselves, exchanges the points for goods they can resell, or uses the points as a pseudo-currency to make purchases on the dark web.

Companies of all sizes struggle with this problem. Customer loyalty is an important factor for success in digital marketplaces. In fact, 74% of marketing and customer experience professionals say customer loyalty is central to their plans for long-term customer retention. Consumer research backs them up. Three in four consumers actively participate in three or more loyalty programs regularly. Therefore, there is great incentive to run large loyalty programs that provide customers with high amounts of value. They are here to stay.

Unfortunately, that high-value attracts fraudsters. The cash value of loyalty program rewards offered in the US alone is at least $48 billion. Specializing in this kind of fraud offers a large pool of potential targets.

In addition, customers remain overwhelmingly lax about securing loyalty program accounts. Many companies only require a username and password to access these accounts. In an era of increasing 2FA security (especially among millennials and the generations after them), this makes loyalty accounts a relatively easy target for fraudsters.

Types of Loyalty Fraud

Three types of loyalty fraud exist:

  • External Fraud. Hackers gain access to a loyalty program account. This is a type of account takeover fraud (ATO) attack. First, the dark web circulates “configuration files” that tell hackers how to make account login attempts as quickly as possible on a certain website. Second, hackers sell “data dump” files that provide login/password credential combinations for that site. Finally, fraudsters use the site credentials on the site. They clean out the loyalty points of any account they gain access to.
  • Internal Fraud. Internal loyalty fraud schemes are inside jobs. Employees use their access to a merchant’s backend systems to gain access to customer accounts and steal points. Examples include cashing in rewards, syphoning points away, and misdirecting point accreditation. Often, this type of fraud occurs due to a failure to implement known security best practices.
  • Friendly Fraud. Authorized loyalty account holders sometimes violate its terms of service in an effort to accure unauthorized benefit. One example of this is when multiple members of a family accrue points on the same account. Another example is the unauthorized resale of points by the account holder to a third party.

Prevent Loyalty Fraud

Successful loyalty fraud schemes usually occur due to account holder or merchant apathy. Despite their value, the value of loyalty programs are both long-term and illiquid assets. As a result, there is a tendency to overlook them. This makes them an easy target for fraudsters. Often, neither the merchant nor the account holder realizes a problem exists until it’s too late.

Both account holders and merchants can take steps to prevent loyalty fraud.

  • First, both account holders and merchants should take proactive steps to prevent hackers from gaining access to accounts. For account holders, this means not reusing usernames or passwords across accounts and regularly checking account activity statements for unauthorized activity. For merchants, it’s important to maintain the security of backend technology. Use impenetrable hosting to keep data security, adhere to international ISO security standards, and train personnel on proper security practices such as avoiding phishing scams.
  • Second, merchants should limit the speed of point accrual and spending. Merchants should set time limits on both the speed and quantity of point accrual. In addition, limit transfer authorizations to reasonable amounts needed for common transactions. One way to do this is to make accrued loyalty account points inaccessible for a certain length of time.
  • Third, merchants should flag mismatches between an account’s expected and actual usage. Machine learning models can monitor account holder behavior for usage that deviates from expectations in a way that indicates fraud. For example, sudden accelerated point accrual/spending, frequent redemptions, or any kind of change in the usage of a long-standing account should be flagged.
  • Fourth, account holders should frequently monitor their own account activity. Merchants must educate account holders about the dangers of loyalty fraud and the importance of monitoring accounts. In addition, merchants can help the process along by incentivizing holders to do so.

The High Consequences of Failing to Protect Customers High

Data privacy is increasingly important to customers. Merchants do their best to prevent the data breaches that lead to loyalty fraud. However, hackers are skilled at bypassing merchants’ defenses. Unfortunately, successful attacks can and do occur in all consumer facing industries.

Increased customer awareness of the problem increased regulators’ awareness. The European Union GDPR Directive requires companies doing business with Europeans to protect customer data. The EU already handed down several fines for non-compliance with the directive. Regulatory oversight across all jurisdictions should increase in the future. In the US, failure to comply with HIPAA data protection regulations can result in a $50,000 per compromised customer.

In addition to regulatory fines, companies also face breach remediation costs on their systems’ backends, as well as lawsuits from customers. This last point is arguably the most important. Companies forced to make public admissions of data breaches lose customer confidence and loyalty.

Here are a few examples of successful loyalty fraud by industry:

  • Banking. MasterCard suffered a loyalty program data breach that leaked the names and payment card numbers for members of its “Priceless Specials” loyalty program.
  • Airlines. British Airways suffered a nearly £200 fine for failing to protect 500,000 customer accounts. Information stolen included credit cards, login details, and even travel bookings.
  • Hospitality. A Radisson hotel loyalty points breach required nearly an entire month for the company to discover. EU regulators took notice.
  • Food and Beverage. Hackers targeted Dunkin’ Donuts’ DD Perks loyalty points program, forcing the company to tell all customers to change their login credentials.

Increased Opportunity Means Increased Fraudster Activity

Merchant incentives to increase the value and scope of customer loyalty programs means the problem will not go away. However, the tools to prevent loyalty fraud exist. Companies can take steps to increase their own preparedness, as well as customer awareness of the problem.

To learn more about the fraud prevention solutions working to prevent this ongoing and serious problem, check out Merchant Fraud Journal’s special report about how to protect yourself from the biggest fraud trends in 2020.

 


Sources:

https://martechseries.com/sales-marketing/customer-experience-management/74-marketers-cx-professionals-say-customer-loyalty-driving-digital-experience/

https://www.retailtouchpoints.com/topics/crm-loyalty/points-based-rewards-motivate-loyalty-among-all-generations-of-shoppers

https://www.thewisemarketer.com/data-and-privacy/loyalty-fraud-10-questions-with-laura-hurdelbrink/

https://www-03.ibm.com/press/us/en/pressrelease/53646.wss

https://www.bankinfosecurity.com/blogs/radisson-suffers-global-loyalty-program-data-breach-p-2677

 

 

 

Tags: Loyalty Fraud
TweetShareSend
Previous Post

Riskified Announces $165 Million Series E Funding Round

Next Post

Orvis.com Passwords Leaked On Pastebin

Next Post

Orvis.com Passwords Leaked On Pastebin

Our Latest Reports

2023 Consumer Payments Survey Report

2023 Fraud Trends Report

2022 Chargeback Consumer Survey Report

Fraud Prevention Tactics that Enable Exceptional Customer Experience

Addressing Payment Fraud and The Customer Experience in 2022

2022 Fraud Trends Report

ATO Fraud In Retail Report

2022 Customer Experience Report

3 Ways a Unified Chargeback Management and Fraud Platform Increases Revenue

Digital Trust And Safety Report: Combating the Evolving Complexities of Payment Fraud

On-Demand Webinars

New Trends in The Payments Ecosystem

Balancing Customer Experience and Fraud Prevention: What’s the Secret?

Stopping Fraud Across the Customer Lifecycle

Addressing Payment Fraud and the Customer Experience in 2022

 

Get the 2023 Fraud Trends Report

Search Our Site

No Result
View All Result

Our Sponsors

Featured Directory Listings

  • Signifyd
  • Microsoft Dynamics 365 Fraud Protection
  • PayRetailers
  • Spotrisk
  • CB-ALERT
  • Corepay

Our Sponsors

Fraud Industry News

The ai Corporation extends collaboration with Shell to utilise cutting-edge Autopilot Machine Learning to protect Shell Card users from fraud

The ai Corporation extends collaboration with Shell to utilise cutting-edge Autopilot Machine Learning to protect Shell Card users from fraud

September 19, 2023
Sift Named a Leader in Fraud Detection, E-commerce Fraud Detection, and Risk-Based Authentication on G2

Sift Named a Leader in Fraud Detection, E-commerce Fraud Detection, and Risk-Based Authentication on G2

September 15, 2023
VISA Amends Its Dispute Management Guidelines for Merchants

Visa Research Highlights Emerging Fraud Schemes in Retail and eCommerce

September 15, 2023

Connect With Us

Quick Navigation

  • Home
  • News
  • Join Us
  • About Us
  • Contact Us
  • Advertise
  • Contribute
  • Privacy Policy

The Payments Media Network

Merchant Fraud Journal
Payments Review

Privacy Policy

Our Privacy Policy
Our Terms of Use

Resources

  • Articles
  • eCommerce Fraud Reports
  • eCommerce Fraud Webinars
  • Training and Certifications
  • Jobs Board
  • Associations and Non-Profits
  • Podcasts
  • Vendor Directory

Popular Posts

  • How Does Two-Factor Authentication (2FA) Work?

    How Does Two-Factor Authentication (2FA) Work?

    0 shares
    Share 0 Tweet 0
  • How to File a Claim With FedEx + What To Do If Claim is Denied

    0 shares
    Share 0 Tweet 0
  • How to Fight PayPal Chargeback Fraud

    0 shares
    Share 0 Tweet 0
  • The 7 KPIs of Fraud Prevention Success

    0 shares
    Share 0 Tweet 0

Featured Vendors

  • Signifyd
  • Microsoft Dynamics 365 Fraud Protection
  • PayRetailers
  • Spotrisk
  • CB-ALERT
  • Corepay

Download the 2023 Fraud Trends Report

No Result
View All Result
  • About Merchant Fraud Journal
    • Interested in Contributing or Guest Posting to Merchant Fraud Journal?
  • Advertise on Merchant Fraud Journal
  • Articles
    • Chargebacks
    • Fraud Prevention
    • Influencer Insights
  • Contact Us
  • Download Addressing Payment Fraud and Customer Experience Report
  • Download Chargebacks Consumer Survey Report 2022
  • Download Evolving Complexities of Payment Fraud Report
  • Download Fraud Prevention Tactics that Enable Exceptional Customer Experiences Report
  • Download Merchant Fraud Journal 2023 Fraud Trends Report
  • Download the 2020 Chargeback and Representment Report
  • Download the 2020 Merchant Fraud Journal Vendor Guide
  • Download the 2021 Fraud Trends Report
  • Download the 2022 Fraud Trends Report
  • Download the 2023 Consumer Payment Trends Report
  • Download the 3 Ways a Unified Chargeback Management and Fraud Platform Increases Revenue Report
  • Download the MFJ 2022 Customer Experience Report
  • Download the MFJ ATO in Retail Report
  • Home
  • Job Dashboard
  • Join The Merchant Fraud Journal Community
  • Merchant Fraud Journal Advertising Agreement
  • MFJ Fraud Trends Report Giveaway
  • News
  • Post a Job
  • Privacy Policy
  • Resources
    • 2020 Chargeback Representment Guide for Merchants
    • 2020 Vendor Guide
    • 2023 Consumer Payments Survey Report
    • 3 Ways a Unified Chargeback Management and Fraud Platform Increases Revenue
    • Addressing Payment Fraud and the Customer Experience in 2022
    • Associations and Non-Profits
    • ATO Fraud In Retail Report
    • Balancing Customer Experience and Fraud Prevention: What’s the Secret?
    • Chargebacks Consumer Survey Report 2022
    • Digital Trust & Safety: Combating the Evolving Complexities of Payment Fraud
    • eCommerce Fraud Reports
    • eCommerce Fraud Webinars
    • Fraud Prevention Tactics that Enable Exceptional Customer Experiences
    • Fraud Prevention Training and Certifications
    • How to Build a Recession Proof Chargeback Prevention Strategy
    • How to Stop Fraud During the 2022 Holiday Season
    • Jobs Board
    • Merchant Fraud Journal 2023 Fraud Trends Report
    • Merchant Fraud Journal’s Fraud Trends 2020 Report
    • Merchant Fraud Journal’s Fraud Trends 2021 Report
    • Merchant Fraud Journal’s Fraud Trends 2022 Report
    • MFJ’s 2022 Customer Experience Report
    • New Trends in the Payments Ecosystem
    • Podcasts
    • Prevent High-Velocity Fraud Attacks During the 2021 Holiday Season
    • Stopping Fraud Across the Customer Lifecycle
    • Vendor Directory
    • Webinar – Addressing Payment Fraud and the Customer Experience in 2022
    • Webinar – Mitigating Fraud and Risk on the ACH Network
    • Win January Chargeback Disputes
  • Subscribed
  • Terms and Conditions

© 2021 Payments Media Solutions Canada Inc.

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?