In recent years, cyber-criminals have realised that the payoff from leveraging compromised accounts to commit fraud is much greater than attacks at the point of transaction. As a result, online transaction fraud losses, which are increasingly driven by account-focused attacks, are expected to reach $25.6 billion in 2020.
Loyalty programs, which rely heavily on loyal customer accounts, have evolved considerably in the last decade and provide valuable rewards. While the value and liquidity of loyalty program rewards have heightened, protecting these assets has lagged behind other digital services.
Fraud, Like Water, Always Finds Its Way
Fraudsters have found their way through the labyrinth of protected services to more vulnerable ones. As a result, loyalty program fraud is skyrocketing and loyalty points have become a new currency for fraudsters. According to Forter’s 2019 Fraud Attack Index, this type of fraud has increased by 89% during the last year and 12% in dollar value. A variety of attacks have become prevalent, including:
- Account Takeover (ATO): Fraudsters leverage a variety of methods such as brute force attacks/stolen credentials, or automated cyber-attacks to hack into existing accounts and steal user credentials, funds or benefits. Forter’s data indicates that 56% of Account Takeover attacks in Asia result in fraudsters redeeming rewards points in those accounts.
- New Account Fraud: Fraudsters create multiple fake loyalty accounts, occasionally leveraging stolen identities, then use them for a variety of fraudulent schemes, including loyalty points laundering. According to Forter research, 6 out of 10 merchants in Asia have noticed this type of abuse in their loyalty programs.
- Transactional Fraud: After hacking into accounts, fraudsters use credit cards or other payment methods linked to loyalty accounts to perform fraudulent transactions.
- Policy Abuse: Users violate various business policies to receive benefits or rewards by exploiting loopholes in the system. Notable examples include signup, referral, and coupon rewards being overshared or gained dishonestly.
What Keeps C-Level Executives Up at Night
Overall losses from loyalty and reward points fraud are estimated at $1 billion every year and the Loyalty Security Association (LSA) estimates that $3.1 billion in redeemed points are fraudulent. Loyalty program fraud can affect a wide variety of organizations across industries, from airlines to hotels, to apparel merchants and quick-service restaurants (QSRs). C-level executives from these enterprises must solve multiple pain points including:
- Tarnished Brand Reputation. 69% of loyalty program executives report that loyalty program fraud has a negative impact on brand reputation.
- Stifled Business Growth. Enterprises that experience fraud are reluctant to expand their loyalty programs or offer new services without adequate protection.
- Lost Revenue. Unprotected loyalty programs are losing twice. When redeemed services/goods are obtained fraudulently, the program absorbs the cost of loyalty point reimbursements along with the cost of fraud.
- High Operational Costs. Manual review teams, fraud investigations, and the acquisition of supporting fraud tools or systems result in high operational costs.
- Current Systems Cannot Catch the Fraud. Nearly 50% of merchants indicated that low organisational priorities and a lack of adequate resources prevent them from stopping loyalty fraud.
Going Forward
Loyalty programs have become a new target for cyber-criminals due to the increasing value tied to them and due to extremely low threat awareness and preparedness. Enterprises need to implement new fraud prevention solutions and approaches to protect loyalty accounts throughout the entire user journey.
To learn more about how Forter effectively combats loyalty program fraud, download our white paper or register for our upcoming webinar now!
This article was sponsored by Forter.
