Why do you need protection against loyalty fraud?
Does your business use a loyalty program to keep its customers engaged? This is a common tactic, but one that comes with risk built in.
It is easy to see why brands deploy loyalty programs. The top reason why companies run these initiatives is to increase customer lifetime value (60% of companies)1, followed by increasing purchase frequency (38%)1, and reducing churn (38%).[1] These are all essential goals as your business stakes its place against competitors.
While you likely view your loyalty point system as a key source of retention and lifetime value, criminals and fraudsters look at it and see another potential way to extract value from your company. This means you need to remain on guard against attacks targeting your loyalty efforts, particularly if your business operates in an industry that commonly uses loyalty points as a key motivator — for example, air travel or iGaming.
What is loyalty fraud?
Loyalty fraud can take several forms. In short, the term just means an attack on a company’s loyalty program, and it includes multiple methods and intended outcomes.
These illicit tactics include:
- Account takeover (ATO) attacks: When fraudsters take control of customer accounts, they gain access to the information saved in those profiles. If that includes loyalty points that can be redeemed for cash-equivalent value, these criminals have added motivation to strike. They can use tactics like credential stuffing (trying combinations of thousands of stolen or leaked credentials) to break into accounts.
- Synthetic account creation: If your business gives away loyalty points when consumers create new accounts, criminals may target your business by creating “synthetic” identities out of stolen or wholly fabricated information on individuals, such as Social Security numbers. This is a major risk in fields like iGaming, where criminals can claim sign-up bonuses from countless false identities.
Fraudsters today have ample opportunities and plenty of motivation to break into companies’ systems for tracking loyalty points. Stealing and illicitly redeeming points can give these criminals items with real cash value, and the victims may not discover the thefts as quickly as if they had attacked a bank account.
Since criminals have access to high-tech tools today, including simple-to-use AI-powered utilities like “FraudGPT,” it has never been easier for them to threaten loyalty points en masse. Failure to defend your organization’s systems may result in several kinds of consequences.
What is the risk of loyalty fraud for your business?
Loyalty fraud is a popular attack type due to the perceived vulnerability of point systems. Due to the need to protect personally identifiable information and bank details for compliance reasons, companies often put their strongest defenses around that data, leaving loyalty systems at risk.
The consequences of this inattention can be serious, and include:
- Direct financial loss: The lost income associated with stolen goods and services can cut into your profits. Especially if you operate in a field like air travel, where robust point systems are commonplace, you may end up suffering large-scale losses due to Account Takeover (ATO) attacks or synthetic account creation.
- Reputational damage: In addition to direct loss, your company may suffer something more harmful from loyalty fraud: damage to your reputation. Customers who suffer compromised accounts may stop trusting that your brand can keep them safe and seek out a competitor due to the inconvenience and unease caused by a hack.
Offering a valuable loyalty program is a key selling point for today’s companies, one that can help your business stand out from the competition. A points system is also a way to shape customer behavior and to collect useful data that can inform your future offerings and promotions.
If customers start to view your loyalty program or overall account system as insecure or risky, the advantage vanishes. You need to protect your systems to stop this positive from becoming a negative.
How do you protect your business against loyalty fraud?
What form should your loyalty fraud prevention system take? Considering the technological development of today’s criminals, your countermeasures also need to reflect the latest and most advanced methods available. This means solutions infused with AI-related capabilities, including machine learning (ML).
The development of fraud detection systems powered by AI has been cited as a key driver of the $15 billion loyalty management industry.[2] Deploying advanced defenses is a way to encourage confidence in your loyalty program. It is safer to invest in improving and promoting your offerings when you know you have effective fraud detection.
ML-infused fraud prevention systems interpret a variety of inputs to determine whether an account is being accessed by its legitimate owner. These include device type, IP address, real-time behavior, and more. ML’s ability to process more signals in less time makes it a key technology in the era of tech-infused, high-volume fraud.
Your fraud prevention solutions need to extend from end to end, protecting customers from the moment of account creation through every step of a transaction, including payment and delivery of goods. Account protection is the subset of fraud prevention most relevant to loyalty fraud, because fraudsters see ATO and synthetic account creation attacks as relatively easy ways to skirt around defenses.
Conclusion: Step up your defenses against loyalty fraud
Keeping your customers’ accounts secure is a keystone in an overall anti-fraud strategy. Addressing this area of protection helps with loyalty fraud prevention, while also defending against any exploitation of stolen or synthetic accounts.
When your loyalty program is well-designed and well-protected, it plays a major role in winning ongoing engagement from your customers. Your defenses should incorporate the latest technology, but they should also have a strong human component, being intentionally and intelligently customized by experts to suit your specific needs.
This is the experience you receive when you choose Accertify as your fraud prevention partner. Accertify’s ML-driven fraud detection platform is the industry standard in terms of protecting against account takeovers and other forms of compromise.
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