Loyalty fraud, also referred to as Loyalty Point or Reward Point Fraud, occurs when criminals exploit a merchant’s reward program for malicious purposes. This typically follows incidents such as account takeover fraud or other forms of identity theft, with the aim of pilfering a consumer’s accumulated reward points.
From a business standpoint, loyalty programs are a guaranteed benefit, enhancing revenue, customer retention, increasing conversion rates, reducing marketing expenses, and significantly influencing consumer spending. For consumers, loyalty rewards create a sense of recognition, appreciation, and gratification for their ongoing allegiance to a brand. It’s a mutually advantageous arrangement for both parties.
Despite the evident value of such programs, what often remains unspoken are the numerous opportunities for fraudulent activities concealed behind their allure.
Organized fraudsters, for instance, employ technical expertise and tools to gain unauthorized access to customer accounts and siphon off loyalty rewards.
According to Statista, in 2021, loyalty fraud accounted for 27% of all fraud attempts experienced by online merchants.
It’s important to note that loyalty fraud and account takeover fraud (ATO attack) are closely interconnected, even though they may be categorized separately. Typically, fraudsters first infiltrate customers’ accounts and then proceed to abscond with their accrued loyalty points.
Written by Andrii Vovk