Customer loyalty programs are created with the aim of increasing sales retention and rewarding customers who have been loyal to using or buying your products. However, it is undeniable that many individuals try to manipulate the loyalty programs provided, such as fake account creation or reward manipulation.
The main goal is very simple, which is to get more points for bigger rewards. For that reason, as a loyalty program provider, you must build a system that protects against fraud so that no party is harmed.
The Hidden Vulnerabilities of Loyalty Programs
Loyalty programs are one of the easiest cyber attack targets because users generally rarely pay attention to applications or transactions in loyalty programs. This is because users usually have more than 1 loyalty program.
Moreover, users may rarely use certain loyalty programs so that their use will not be noticed too much. In addition, some loyalty program applications also do not display information in the form of notifications or emails. That is why loyalty programs are very vulnerable to being attacked by hackers.
Why Securing Loyalty Programs Is Essential
Loyalty programs are valuable tools for customer retention, but without proper security measures, they can quickly become entry points for fraud. That’s why you need to know the impact of low secure loyalty programs so you can take a step ahead to protect your system more wisely:
Financial Impact
First thing first, you will face the financial loss that will affect your expenses and income in your business. How does it work? First, the hacker will perform an account takeover that attacks active users.
After successfully logging in, the hacker will manipulate transaction data that burdens the business owner. For example, giving excessive discounts, adding points, adding rewards, and the like. These fraudulent activities not only impact your revenue but also create inconsistencies in reporting and customer records.
Erosion of Customer Trust
Loyalty programs that are frequently attacked by hackers or do not have a good security system will certainly reduce the level of customer trust. This will certainly have a big impact on the company because customer trust is one of the things that is difficult to obtain.
When customers no longer trust your company, they are very likely to do mouth-to-mouth information and provide information about the failure of the company’s system. If this has happened, it will certainly be difficult for you to improve the company’s image.
Increased Security Risks
System and application security should indeed be a primary concern for every company that uses digital access. The many risks of security system breaches must be minimized by having an integrated security system.
Especially for those of you who have a loyalty program, security risk must be increased to avoid fake account creation, reward manipulation, account takeover, policy abuse, and many more.
Damage to Brand Image
If a loyalty program is compromised (e.g., through data breaches, fraud, or unauthorized access), it can significantly harm how customers perceive the brand. Stolen points, fake redemptions, or identity theft frustrate loyal customers who may abandon the brand altogether.
The consequences don’t end there. Once trust is lost, regaining customer loyalty becomes difficult, giving competitors an edge. Customers are less likely to return, and negative word-of-mouth can deter potential users. Meanwhile, competitors with stronger security measures may be seen as more reliable alternatives, putting your brand at a clear disadvantage.
Legal and Regulatory Consequences
Loyalty programs often collect and store sensitive customer data (e.g., names, email addresses, purchasing habits). A security breach can trigger serious legal repercussions. Organizations may be required to publicly disclose the breach, which further damages trust and exposes them to scrutiny.
Common Types of Loyalty Program Fraud
Understanding the risks starts with knowing what to look out for. In reality, there are common types of loyalty program fraud that you must pay attention:
Fake Account Creation
The most common fraud that occurs on a large scale is creating more than 1 fake account. Usually, companies that provide loyalty programs will give bonuses to users who have just joined or invited their friends to join and register for the loyalty program.
However, it turns out that this method is misused because many perpetrators create new accounts with different emails. The goal is for them to get bonuses every time and can enjoy them without having to spend a lot of money.
Reward Manipulation
Every user who joins the loyalty program will certainly get a reward from every minimum transaction made. This is seen as an opportunity for hackers to get more rewards or points without having to make transactions (no need to spend money).
How? The way is they look for bugs in the application so they can double the reward as desired or set it themselves as needed.
Account Takeover
As a user, have you ever checked your transactions and felt like you never made the transaction? If so, it means that your account is being hacked or taken over by irresponsible people.
These hackers will use the rewards, balances, or points in the user’s account to meet their needs. This can happen due to user error or lack of protection system in the loyalty program application.
Also Read: Account Takeover Prevention: Reducing Financial Threats
How Keypaz Secures Loyalty Programs with Device Intelligence
offers flexible integration options, allowing businesses to incorporate its security features into their existing loyalty platforms without disrupting the user experience.
How does it work? Powered by device intelligence, Keypaz enables real-time detection and prevention of fraudulent activities, protecting the integrity of your loyalty program. By analyzing device behavior and usage patterns, it can accurately identify suspicious actions before they escalate.
By safeguarding user accounts and rewards through intelligent device-level monitoring, businesses can foster greater trust and engagement among their customers.
Automated fraud detection like driven by device insights also reduces the need for manual monitoring. This is allowing businesses to allocate resources more effectively while maintaining high levels of security.