A customer loyalty program would encourage customers to buy more, as long as it is safe from exploitation. But in reality, this goodwill system may attract customer loyalty fraudsters, causing losses to affected victims.
Actually, there is nothing wrong with customer loyalty programs per se. They have been used for a long time to build the relationship with customers, ensuring them to keep purchasing.
As the one who manages the businesses, securing customers’ redeemable points from loyalty programs is a must. Let’s figure out what exactly to do in order to prevent fraudsters from stealing them.
What is Customer Loyalty Fraud?
Customer loyalty fraud, or loyalty program fraud, is an act of exploiting loyalty program system vulnerabilities to gain a personal benefit. It is deemed a fraud since it’s exploitative and usually prohibited by any businesses.
The customer loyalty program itself is a reward program made by businesses as a strategy to entice customers. By giving them rewards based on their total purchase, customers would feel rewarded for their purchase behavior.
While this seems to be a good strategy, it has a continuous problem. Customers might have easily missed these rewards, which allows fraudsters to take them at ease. In some cases, customers don’t even know that they have enough points to claim rewards.
How Does Customer Loyalty Fraud Work?
So, how can loyalty program fraud be committed? There are multiple ways to do it, based on who the perpetrator is:
Using Stolen Account to Redeem Rewards
The most well-known method is by stealing an account with enough redeemable rewards. Fraudsters can easily do this either by hacking, trapping victims with phishing links, and brute-forcing weak passwords.
Once they gain access, they then redeem available rewards. Since it is very likely for the victims to be unaware of this sneaky act, fraudsters will easily remain uncaught.
Finding an Exploit to Gain More Rewards
Even customers themselves can do fraudulent activities, as long as the business has a weak protection system. Here are ways they can do it:
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- Exploit the redeem system by making a large purchase, redeeming the rewards, and then canceling the purchase immediately.
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- Sell or barter the redeem points for money, which is usually prohibited by the ToS.
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- Use stolen credit cards to make purchases and redeem the rewards, though this is more about a payment fraud.
Adjusting the System from Inside
What about someone inside the services? Is it possible that they have the power to commit fraud? Yes, by adjusting the point from unclaimed rewards to their own account.
Also, if they are given a control to access any user accounts, it is possible for them to redeem as well. It depends on how the system works and how much power an employee has.
Example of Customer Loyalty Fraud
It would be informative for businesses to learn about these fraudulent activities by learning from real-life examples. One of the recent cases happened last year in Qantas, one of the oldest airlines in the world.
The Guardian reported that two third-party contractors in India had allegedly accessed about 800 Qantas customers. The suspects allegedly made changes to the frequent flyer details to redirect redeemable points to the accounts they controlled.
This was made possible by using an airline booking system outside of Qantas’ system. While this case has been resolved, it sets up an example of how loyalty points fraud can be done.
Industries That Are Likely to Be Vulnerable to Customer Loyalty Fraud
Airlines, like the example shown above, are one of many industries that became major targets for these unjust cybercrimes. What else is also vulnerable to loyalty points fraud?
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- Online retail and e-commerce, especially since they give a lot of customer loyalty programs with offers, promotions, and rewards.
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- Travel agencies and ride-hailing apps, mainly because they give extra incentives for customers to travel using a specific brand.
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- Gaming platforms, like the Google Play Points system, for example. Players can accumulate points by making purchases or trying out games, then use them to redeem discounts or rewards.
How to Protect Customer Loyalty Programs from Fraud?
These loyalty programs are vulnerable to exploitation and fraudulent activities, but they are not completely destructive. With the right method, protecting this customer retention strategy is definitely possible.
Ranging from implementing loyalty fraud prevention to giving customers an awareness about their loyalty programs, here are ways to prevent the dangers from customer loyalties:
Implement Advanced Identification System
Each customer must be unique; hence, businesses need to implement a protection that can learn about them. This can be done by leveraging an identification system that detects:
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- Customers’ geolocation and IP address, which lets businesses detect and block an unusual login detection.
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- The device that customers usually use to access their account and loyalty reward.
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- User behavior, such as usual login times and their usual preferred activities that increase their loyalty points.
Secure Account with Stronger Verification System
There are reasons why everyone is so dazzled with having a strong authentication system. Utilizing MFA (multi-factor authentication) and biometrics can ensure only legitimate customers redeem their rewards.
While CAPTCHAs can also be implemented, this security system may give a friction login experience to customers. As such, businesses may opt for seamless authentication that harnesses the power of AI.
Detect Potential Fraud with Machine Learning Technology
Real-time loyalty fraud detection with machine learning capabilities can be easily implemented too. This latest cutting-edge technology can help detect early fraud attempts before the fraudsters get away from it.
What’s more, machine learning can also adapt to potential future fraud techniques. This helps businesses to stay safe in advance, making sure the loyalty programs stay protected without worrying about online frauds.
Educated Customers about How Loyalty Rewards Work
Ultimately, customers have the most power to control their loyalty rewards. Businesses need to educate them about how valuable these redeemable points are, since they carry a monetary value that the fraudsters seek.
Customers can also be educated about protecting their account from being taken over. Lastly, they also need to check about their loyalty programs regularly, ensuring they can notify as soon as a fraud has been attempted.
At the bottom line, customer loyalty fraud harms businesses as it continuously eats rewards from unsuspecting victims. By utilizing a better protection system, loyalty programs should be as good as it gets.