The prevalence of loyalty program fraud is on the rise. Cybercriminals are utilizing a range of schemes to infiltrate users' confidential data and abscond with the loyalty rewards and points they managed to earn.
What's even more troubling is the exploitation of reward system vulnerabilities by users themselves, and occasionally, even employees. Yielding to such fraudulent activities not only disrupts clients’ confidence in the brand but may also trigger a revenue decline.
In this article, we'll explore effective tactics to strengthen and safeguard your loyalty program, ensuring mutual benefits for both business owners and their clients.
Loyalty Fraud: Why it's Becoming More Prevalent
Loyalty fraud encompasses deceitful actions aimed at exploiting loyalty programs for personal advantage. Fraudsters utilize diverse strategies including account hijacking, point manipulation, and fabrication of counterfeit accounts to exploit accrued rewards or manipulate the system for their own gain.
The repercussions of loyalty fraud for brands are extensive. Immediate financial losses arise as fraudsters cash in on illicit rewards, directly impacting the profitability of loyalty initiatives.
However, the negative effect may go far beyond monetary concerns. Loyalty fraud undermines customer confidence and stains the reputation of a brand, potentially leading to enduring harm to either the clients themselves or the loyalty program in particular.
How Loyalty Fraud Works
Loyalty program fraud occurs when users start exploiting a particular promo campaign as well as some of its terms and conditions to make an illegal financial gain. Hackers tend to sign up for the same promo several times as well as manipulate several orders at a time.
Individuals who engage in fraudulent activities are identified as fraudsters. Their actions not only put the desired ROI at risk but also pose a threat to the integrity of the entire rewards program. Therefore, implementing fraud prevention measures is crucial for safeguarding a marketing strategy.
Types of Loyalty Fraud
Businesses should be extremely cautious when launching their loyalty campaigns. It is crucial for them to be aware of the prevalent types of abuse to effectively apply loyalty fraud prevention means.
So, here are the most common types of loyalty program fraud:
- Manipulating Loyalty Points – Criminals exploit loyalty systems to inflate their reward balance through unauthorized methods. They generally involve using software vulnerabilities or automated bots. This devalues the rewards and imposes operational costs on the program, particularly if the vulnerability spreads widely.
- Account Takeover – This fraud involves hackers gaining unauthorized access to a legitimate loyalty account that belongs to 3rd party users. The idea is to redeem rewards or alter the account balance. Typically achieved through phishing attacks, password reuse, or exploiting weak security measures, the repercussions of account takeover range from lost rewards to diminished customer trust in the program.
- Launching Fake Loyalty Campaigns – Fraudsters establish counterfeit loyalty programs to deceive customers into enrolling and divulging personal and financial details. Subsequently, these details can be utilized for identity theft or other financial fraud schemes. This type of scam is particularly the most threatening one in terms of the brand's reputation.
- Redemption fraud – This form of fraud takes place when criminals redeem rewards through different unauthorized methods involving expired promotions or counterfeit user data. Redemption fraud not only impacts the financial viability of the program but also devalues the reward itself.
Having strong security measures in place and consistently monitoring your program for indications of fraud are crucial. This may involve employing advanced authentication techniques, frequently reviewing program data, and collaborating with specialized anti-fraud experts to detect and deter any type of scam promptly.
The Costs of Loyalty Program Abuse
Both clients and brands are at risk of being affected by loyalty fraud. Legitimate participants of promo campaigns may witness a decline in the quality of reward offerings, especially during temporary service shutdowns. This may result in a negative user experience.
The Financial Toll of Loyalty Fraud on Businesses
There are risks posed by users who exploit vulnerabilities in reward programs. For instance, attempting to earn points through low-quality referral leads. Additionally, internal threats may happen. They occur when employees within the business claim unredeemed points for themselves as well as friends or family.
Moreover, brands might be obligated to compensate affected customers, which could result in substantial inventory losses for thousands of accounts. Additionally, brands may incur fines and suffer from negative publicity.
On the whole, loyalty fraud makes companies lose around $1 billion annually.
Customer Loyalty Loss
When data breaches happen, users experience personal data leakage. It involves sensitive customer information such as names, emails, dates of birth, credit card details, etc. What’s more, a so-called PII is frequently sold to malicious third parties.
Furthermore, brands endure significant consequences as data breaches lead to wavering customer trust. Without trust, loyalty diminishes, and customers will have nothing to do but abandon campaigns that have been compromised.
How to Prevent Loyalty Fraud: Best Practices
To tackle loyalty fraud, brands must adopt strong fraud detection methods. Let’s have a look at some proven and time-tested approaches that would help companies keep their revenues and clients safe.
Utilize Ranging Safety Parameters
Many instances of loyalty fraud begin at the login stage. Incorporating an additional layer of security can greatly reduce the risk of unauthorized access to user accounts. Those layers may include multi-factor authentication, biometrics, or captcha integration.
Analyze User Behavior
User behavioral patterns analysis assists in recognizing abrupt changes or irregular activities suggesting of fraudulent behavior. They can also pinpoint potential breaches or instances of friendly fraud. This involves scrutinizing redemption patterns, transaction history, and geographical locations.
Moreover, implementing real-time velocity checks enables monitoring of customer activity. Any unusual behavior can be promptly identified and flagged for closer examination, and appropriate action can be taken.
Sensitive Data Protection
Utilizing data encryption is essential for safeguarding customer data during both transmission and storage. Employing strong encryption algorithms and secure communication protocols guarantees that the data remains indecipherable to unauthorized parties.
Furthermore, implementing access controls is crucial to limit access to customer data solely to authorized personnel. This may involve using robust passwords, two-factor authentication, and role-based control.
Constant Program Audit
According to official stats, more than 70% of all loyalty programs launched experience fraud. Regularly auditing loyalty programs and transaction logs is essential for detecting discrepancies or suspicious activities.
By carefully reviewing and analyzing data, brands can identify irregularities, such as abnormal point accumulation or redemption patterns, and implement necessary measures to prevent additional fraud.
Loyalty Fraud Red Flags to Watch Out For
To know what companies are actually fighting with, a notification system is required. When recognized, loyalty fraud red flags can help prevent malicious activities before they do any harm to businesses or users. The most common signs of loyalty fraud taking place are as follows:
- a sudden switch of the ISP within a single account over the last 60 minutes;
- the same billing address used for multiple accounts;
- altering or changing the data of birth by the same customer several times in a row.
JuicyScore combines all the cutting-edge means to ensure flawless loyalty fraud protection and prevention in real-time.
Juicyscore’s Solution Against Loyalty Program Fraud
JuicyScore utilizes advanced machine learning and artificial intelligence technologies to deliver an outstanding service for loyalty fraud prevention.
Tailored to suit business requirements, our solution provides a wide array of robust and technologically advanced tools to let businesses launch safe and revenue-focused promotional campaigns.
AI-Driven Fraud Detection
We developed anti-fraud software that incorporates state-of-the-art technological advancements powered by the latest innovations in machine learning and artificial intelligence:
- The software guarantees efficiency and dependability through the utilization of sophisticated AI-driven algorithms. By considering a variety of criteria for device authentication, it constructs comprehensive end-user profiles from diverse technological data and behavioral attributes.
- Leveraging ML-powered techniques, the system autonomously detects and mitigates risks associated with transaction fraud in real time. It analyzes technical data utilizing various user device settings, features, and indicators, facilitating smooth monitoring, evaluation, and analysis of network infrastructure.
Multiparameter Approach to Fraud Prevention
The system comes with a built-in consolidated data vector. It is responsible for streamlining automated data analysis. It has enough capacity to efficiently manage large datasets, and examine critical parameters of operating system structures, client accounts, and connectivity nuances of both Android and iOS devices. Its primary objective is to aid organizations in enhancing the efficiency of their decision-making processes.
Key Features
Protecting user privacy is a paramount concern within our anti-fraud solution. JuicyScore never collects any personal data. Oppositely, we focus on processing and analyzing behavioral and device-related parameters. This approach streamlines the process for businesses, enabling them to effortlessly identify potentially risky and keep their loyalty campaigns safe.
Device Fingerprinting
JuicyScore meticulously examines various primary and secondary attributes linked to potential fraudulent behavior. The software meticulously monitors essential device-related data to attain unmatched precision in device fingerprinting.
A robust data vector scrutinizes vital elements like RAM capacity, screen size, display quality, device type (tablet, desktop, laptop, or mobile), and other pertinent parameters to ensure accurate fingerprinting.
Behavior Patterns Tracking
We managed to develop an automated alert system. It promptly notifies in-house teams of any abnormal or suspicious actions that can be associated with potential loyalty fraud.
At the same time, teams get all the needed tools to identify abnormal actions like device cloning, randomization, remote access, and other routing strategies. The software assists in quickly detecting and preventing various potentially harmful or fraudulent behaviors by utilizing behavioral patterns.
How It Works
Leading the way in anti-fraud technology, JuicyScore provides cutting-edge anti-fraud instruments customized for different business sectors. We aim to address the evolving needs of digital business platforms by consistently improving our anti-fraud toolkits.
Stratifying Users Through Predictive Analytics
The system utilizes machine learning (ML) and artificial intelligence (AI) technologies to continually enhance its fraud scoring methodologies by evaluating technological and behavioral datasets.
This includes analyzing various aggregated criteria such as dwell/flight times, average typing or content reading speeds, duplicated or randomly selected devices, extended device usage from the same source, and other relevant behavioral data.
Loyalty Account Holders Verification
Ensuring the authenticity of loyalty account holders is vital in safeguarding against fraudulent activities within loyalty programs. This verification process encompasses a variety of methods aimed at confirming the legitimacy of individuals.
Techniques range from validating personal details provided during registration to verifying contact information like email addresses or phone numbers. Additionally, implementing multi-factor authentication adds an extra layer of security.
By diligently verifying the identity of loyalty account holders, businesses can effectively combat risks such as account takeovers and unauthorized redemptions. Ultimately, this proactive approach not only preserves the integrity of loyalty programs but also fosters trust among customers, thereby shielding businesses from potential financial losses resulting from fraudulent behavior.
Ongoing Tracking of User Actions
The approach combines various data points and algorithms to assess the risk of fraudulent activity. Here's a simplified overview of the usual procedure and how the system accomplishes the following:
- Inputs the extracted features into the trained model to predict the probability of fraud for each transaction.
- Assigns a risk score to each transaction based on the predicted probability. This score could be a numerical value or a categorical label indicating the level of risk.
- Adjusts the risk score based on additional factors such as business rules, risk tolerance, and regulatory requirements.
Get Started with JuicyScore Today
Our dedicated team is here to support you every step of the way during the integration process with JuicyScore. Discover the advantages of our advanced fraud score technology seamlessly incorporated into your system through three straightforward steps:
- Integrate an SDK or JavaScript into your platform.
- Customize configurations to meet your company's specific requirements.
- Start collecting and analyzing data right away.
Reach out to us today to schedule a demo and explore the complete range of features we offer.
FAQs
What is loyalty fraud and how does it impact businesses?
Loyalty fraud supposes the approach of hacking promo campaigns with a focus on illegal financial gains. Criminals compromise loyalty promotions using different fraud types including loyalty redemption, account takeover, and more.
What steps can companies take to detect loyalty scheme fraud?
First of all, companies need up-to-date loyalty fraud prevention software. It should combine advanced ML and AI-based technologies to stay ahead of emerging fraud schemes. Additionally, companies should constantly audit their programs, apply extra safety means, and more.
How can data analytics and AI aid in identifying fraudulent activity?
With data analytics, in-house teams can promptly identify the signs of potential loyalty fraud and respond accordingly. AI technologies make it possible to use historical data and other crucial parameters for automated protection in real-time.
What is device fingerprinting and how does it help combat loyalty crime?
While every device leaves its trail online, fingerprinting is a technique to find those trails, compare them with specific user patterns and device-assisted parameters, and reveal potentially risky activities such as randomization, remote device control, or cloning.