{"id":4912,"date":"2023-03-20T10:40:33","date_gmt":"2023-03-20T10:40:33","guid":{"rendered":"https:\/\/ccbill.com\/kb\/?p=4912"},"modified":"2023-03-20T10:40:34","modified_gmt":"2023-03-20T10:40:34","slug":"loyalty-fraud","status":"publish","type":"post","link":"https:\/\/ccbill.com\/kb\/loyalty-fraud","title":{"rendered":"What Is Loyalty Fraud?"},"content":{"rendered":"\n

Introduction<\/p>\n\n\n\n

Loyalty fraud is becoming a common way of deceiving customers, and merchants are also suffering. As the world entered its second year of lockdown back in 2021 and more people turned to ecommerce<\/a>, loyalty fraud spiked by 80%<\/a>.<\/p>\n\n\n\n

Current statistics say that as many as 75% of customers participate in one or more loyalty programs, proving they are an essential strategy for customer retention<\/a>. For this reason, merchants should take loyalty fraud seriously and increase their efforts to protect their customers\u2019 and their own information.<\/p>\n\n\n\n

In this article, learn about different types of loyalty fraud, its consequences, and best practices for protecting your customers and your business.<\/p>\n\n\n\n

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What Is Loyalty Fraud?<\/h2>\n\n\n\n

Loyalty fraud (sometimes referred to as loyalty point or reward point fraud) occurs when a malicious actor abuses a merchant\u2019s loyalty program<\/a> for personal gain. It comes in several forms, but typically the fraudster first performs account takeover<\/a> and then uses or sells the customer\u2019s loyalty points.<\/p>\n\n\n\n

Loyalty fraud was previously most common in the travel industry. However, in recent years other industries have been targeted as well, including online retail, SaaS companies, ride-sharing apps, and iGaming platforms.<\/p>\n\n\n\n

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Note:<\/strong> Some consumers actively participate in loyalty fraud, too. This happens when they use loopholes in the merchant\u2019s terms and conditions to gain more loyalty points. An example of this is opening multiple accounts or dividing purchases to inorganically accumulate rewards.<\/p>\n\n\n\n

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How Does Loyalty Fraud Work?<\/h2>\n\n\n\n

Loyalty program fraud begins with an account takeover or another form of identity theft<\/a>. The fraudster obtains account information through hacking, a data breach<\/a>, or by tricking the victim into sharing the information. Considering that most people use the same password for multiple accounts, breaking into one enables criminals to potentially access all the accounts a person owns.<\/p>\n\n\n\n

Loyalty fraudsters mainly target inactive accounts with unused loyalty points since these attempts usually go unnoticed. Most people participate in more than one loyalty program, so they do not keep a close watch on each individual one. If a customer loses a certain number of loyalty points, they will most likely consider them expired rather than stolen. All of this means that loyalty programs are an easy target for fraud.<\/p>\n\n\n\n

The criminals then use the customers\u2019 rewards and points for their own gain by cashing them in themselves, reselling them online, or even using them as currency in the dark corners of the web.<\/p>\n\n\n\n

Types of Loyalty Fraud<\/h2>\n\n\n\n

Loyalty fraud can broadly be divided into three types:<\/p>\n\n\n\n

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  1. External fraud. <\/strong>Outside perpetrators not related to the merchant or the customer commit this type of loyalty fraud. They circulate the internet to find vulnerable accounts to gain unauthorized access and clear out accrued loyalty rewards.<\/li>\n\n\n\n
  2. Internal fraud.<\/strong> Employees who have access to customers\u2019 accounts perform this type of loyalty fraud. Internal fraud happens when a company fails to implement internal security practices and can be harder to detect since it is an inside job.<\/li>\n\n\n\n
  3. Customer fraud.<\/strong> Customers often purposely go around the terms and conditions of a merchant\u2019s loyalty program to acquire more loyalty points. An example of this is several family members using the same account to accrue loyalty rewards. This type of loyalty fraud can also happen when customers request and obtain a chargeback or refund<\/a> but keep the loyalty points.<\/li>\n<\/ol>\n\n\n\n
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    Note:<\/strong> Merchants should do everything in their power to decrease chargeback rates<\/a>. This way they avoid incurring additional charges or becoming deemed a high-risk merchant<\/a>.<\/p>\n\n\n\n

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    The Repercussions of Not Protecting Customers<\/h2>\n\n\n\n
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    \"The<\/figure>\n\n\n\n

    The effects of loyalty fraud on customers eventually ends up hurting the merchant as well. Here is a list of repercussions businesses experience:<\/p>\n\n\n\n