Protecting Digital Accounts: Loyalty Programs in Focus

September 25, 2018

In today’s hyper competitive retail market that often involves the convergence of both digital and traditional brick and mortar, merchants look for unique ways to attract, retain and grow customer spending and loyalty. One of the most popular ways is with the introduction of reward programs. 

From a merchant perspective, reward programs are a catalyst for increased spending and improved brand loyalty. From the consumer perspective, reward programs are a means to acquiring a trip, a desired product or financial rebate (either cash and/or credit against an existing bill). This is no small market. It is estimated that $225 to $350 billion in loyalty programs exist. With so much money involved, it is no wonder that loyalty programs are in the cross-hairs of fraudsters. Some of the reasons loyalty programs are so attractive to fraudsters includes:

  • Thirty-four percent of loyalty program consumers only log into their accounts every few months.
  • Only 23 percent check account balances even once a month, providing a huge window of opportunity for fraudsters to operate undetected for weeks.

Because reward programs often are not protected with the same scrutiny as a card-not-present (CNP) transaction, fraudsters often are able to gain access to accounts through a multitude of schemes, including phishing scams, identity theft, and synthetic ID, resulting in account takeover fraud. The main objective of account takeover fraud is to steal the points and convert their value into cash or something equivalent.

In today’s digital economy, it is imperative that the protection of reward programs becomes a priority. Similar to how consumers should often check their bank and credit card accounts, loyalty programs should be checked on a regular basis as well.

Retailers need to safeguard reward programs by minimizing the amount of customer data collected and stored, educate the consumer on the monetary value of loyalty points and, when possible, apply similar fraud analytics and identity authentication as a CNP transaction.

Outlined below are several ways that retailers can protect loyalty accounts:

  1. Advanced screening: Technologies like behavioral biometrics, device fingerprinting, geo-location, and proxy piercing provide a first line of defense. These technologies allow a level of identify authentication to ensure that the person behind the screen is the real consumer.
  2. Machine learning: The use of both supervised and unsupervised machine learning allows organizations to understand both the historical patterns of use, as well as identify anomalies. This can help protect accounts and the user experience.
  3. Order linking: Fraudsters will use multiple accounts and devices to make dozens or even hundreds of fraudulent redemptions and/or combine points into accounts to earn prizes of greater value. That’s why linking orders outside of a merchant’s network are critical in protecting loyalty accounts.
  4. Decision engine: Quantifying the risk associated with every loyalty account interaction allows companies to fine tune decisions so that redemptions and customer experiences are optimized and friction during the process is minimal. This can dramatically reduce the number of manual reviews and customer service inquiries.

Reward programs are a powerful way for companies to engage and grow a customer into a brand evangelist. Understanding that protecting a customer’s reward account should be given the same consideration as approving a monetary transaction is critical to reducing fraud and improving customer loyalty.