Highlights:

  • A strong partnership with your reward provider is key to developing and improving fraud prevention tactics.
  • The right technology assigns a “fraud score” to incoming orders, assessing fraud risk and prompting preventive measures if needed.

Loyalty marketers are responsible for designing, managing, and optimizing customer loyalty programs to drive customer retention, engagement, and brand advocacy. Moreover, loyalty programs take care of a few important aspects like:

  • Acquiring new members
  • Keeping members engaged
  • Maintaining ROI

Beyond this, loyalty marketers now have an added responsibility: Combating loyalty program fraud.

As malicious actors are actively exploiting rewards program vulnerabilities, businesses must implement advanced strategies to prevent fraud and protect customers.

According to The Wise Marketer, the vast pool of unspent loyalty points—exceeding USD 48 trillion worldwide—has attracted the attention of malicious actors targeting rewards programs.

Specifically, external fraud is of four types as per Loyalty Security Alliance. It includes:

  • Account takeovers
  • Identity theft
  • Social engineering
  • Botnet attacks

Specifically, account takeovers are the most common, where hackers gain access to customer accounts and carry out unauthorized transactions, according to the Association of Certified Fraud Examiners.

How Cybercriminals Gain Control of Accounts?

According to the research of Loyalty Security Alliance, account takeovers happen when bad actors get access to customer accounts using one of the following methods:

Continuous rise in fraudulent account access is costing businesses one billion dollars annually. Hence, this is a perfect time to take precautionary actions against account takeovers.

Loyalty Program Fraud Prevention: Stopping Account Takeovers

Loyalty programs are becoming vulnerable, as cybercriminals are actively exploiting vulnerabilities to take over accounts and steal rewards.

Look at these proactive security strategies to get through the situation:

  1. Closely work with technology and fraud prevention teams

The right tools play a crucial role in enhancing security, detecting loyalty fraud attacks, and preventing them when they occur.

  1. Immediately notify users at the first sign of a data breach

Notifying customers about a data breach is just as important as addressing other critical elements, such as:

  • Managing compromised credit card data
  • Checking loyalty points
  • Encouraging the password change

  1. Guiding customers to protect their accounts

Advocate for consistent account balance checks, routine password changes, and the adoption of unique passwords for each account.

  1. Mandate security precautions for employees

Hackers constantly seek out weak data protection practices. To counter this, regular security training for employees is essential. It must include:

  • Limited access to sensitive data
  • Changing passwords with strong and unique variations

  1. Utilize additional and advanced security measures

Security measures like multi-factor authentication, tokens, and biometrics are valuable, but they require constant refinement.

Your technology team should prioritize keeping employees and customers abreast of changes.

  1. Ensure your partners uphold the same level of care as yours

Loyalty programs often depend upon external partners for technology and rewards. To ensure security, it’s necessary to build strong collaborative relationships between your technology and fraud teams, and those of your partners.

Finally, remember to pay more attention to those reward providers who are the last line of defense against fraud.

Loyalty Point Fraud: Preventing Fraud at Redemption

What will your action be when a bad actor successfully takes over accounts and redeems rewards?

With the right reward partner, you can identify and cancel fraudulent orders before they are fulfilled.

  1. Technology tools and data

As fraudsters become more sophisticated, fraud prevention technology has also developed. Modern tools analyze device data, user behavior, and key transaction details to detect threats and anomalies.

Machine learning enhances fraud detection by assessing identity patterns, while predefined rules evaluate factors like order value, email and shipping addresses, device type, and order frequency.

With the right technology, incoming orders receive a “fraud score,” indicating the likelihood of fraudulent activity and triggering preventive actions if necessary.

Higher scores suggest greater risk, helping businesses stop fraudulent transactions before fulfillment. As these tools process more data over time, their accuracy in detecting fraud continues to improve.

  1. People and process in fraud prevention

Detecting fraudulent orders is only the first step—human oversight is essential. It’s crucial to have the right people in place and well-structured processes to ensure that:

  • High-risk orders are canceled
  • Low-risk orders are fulfilled
  • Mid-risk orders go under review

For this to happen systematically, choose a reward provider with experienced professionals, including a dedicated fraud team and a project manager who actively oversees your program.

While tools analyze past data, fraud experts can spot new threats and subtle red flags. Their intuition and experience add a strategic layer of protection to help stay ahead of ever-evolving fraud tactics.

  1. The power of collaboration and trust

Strong bond between your team and your reward provider is prime way of developing and refining fraud prevention tactics.

By working together and adapting processes over time, both teams can stay ahead of newer fraud tactics.

Ensure your reward provider shares your commitment to protecting customers and your brand. It is essential for combating loyalty program fraud.

Conclusion

While you prioritize new or current reward providers, try to ask the following questions to ensure they’re doing all they can to save your program and your customers.

Ask them at least these questions:

  • Do providers carry experience with similar programs in volume and hardness?
  • Is there a committed fraud team available with project management and tech expertise?
  • Can providers show success in resolving complex fraud cases?
  • Do providers apply strong data security measures, like training and password policies?
  • Are customer service teams trained to detect and respond to fraud efficiently?

Loyalty marketers face various challenges, with external fraud being a significant concern.

Therefore, by applying the appropriate tools, processes, and partnerships, you can lessen the financial and reputational risks connected with loyalty fraud and protect your customers.