Businesses spend countless hours and sometimes millions of dollars to gain customer loyalty, which pays off for both the customer and the company when it works. As a result, loyalty programs increased in popularity among merchants and the customer base. 

However, another group loves loyalty programs – fraudsters. Loyalty and rewards fraud represents a perfect storm for fraudsters to steal personally identifiable information, cash, and merchandise from legitimate accounts. Once a loyalty and rewards account is compromised, complete Account Takeovers may only be a few steps away. So, to protect their customers and profits, companies must find the right technology to detect and prevent these schemes. 

Companies Love Loyalty and Reward Programs 

Loyalty and reward programs provide big business at a current market size of $4.43 billion; by 2028, the global loyalty management market is on track to be close to $18.22 billion.

Businesses love loyalty programs because they can be inexpensive options to boost growth. Since maintaining an existing customer is far less expensive than acquiring a new one, reward and loyalty programs are perfect and affordable tools to capitalize on returning customers. Here are three ways these programs benefit companies:

  1. A well-run loyalty program can help boost a company’s reputation. The more customers feel appreciated, the more they will be able to tell the world on social media.
  2. Loyalty programs can also increase cyclical sales by incentivizing further purchases. As customers purchase more, they earn more rewards that they can use towards more continued purchases.
  3. Companies can gain available and honest research with a captive and loyal audience. Loyalty rewards programs are great opportunities to conduct valued customer insight and product-based research. Additionally, incentivizing research participation can also drive more sales.

These Programs Can be Cash Cows for Fraudsters  

Unfortunately, companies are not the only ones who see the advantages of loyalty and reward programs. Companies sit on a wealth of customer information, so cyber criminals see these programs as prime and profitable targets. Many companies do great work on closing front-facing online security gaps. However, many loyalty and reward programs (rich with data and, in some cases, cash) fly well under many companies’ security radars and don’t receive the same level of security scrutiny as portals do. Here are three reasons why loyalty and reward programs are hotbeds for fraudsters:

1. Cash Equivalents

Nearly $140 billion is left unspent in loyalty points in the United States alone. These loyalty points can be exchanged for merchandise, travel (flights), or even sold to online brokers. If fraudsters can easily attain this liquidity, they can offload or trade it on the dark web within minutes.

2. Easy Targets

Often, loyalty programs are built out of marketing initiatives and may not get the IT security attention needed. As a result, this leaves customer accounts much less protected than other more formal financial accounts while holding liquidity and personal info simultaneously.

3. Under Use

Forgotten and new balances tend to drop off people’s radars. People simply don’t check their loyalty points unless prompted to use their balances, so their information is primed for fraud. 

Typical Loyalty and Rewards Fraud Schemes

Customers often use the same login credentials in both loyalty and legitimate accounts. Even if loyalty accounts don’t hold any monetary equivalent values, they provide rich reserves of vulnerable customer data. People tend to sign up early and leave loyalty accounts inactive. From there, fraudsters easily carry out the following types of loyalty and rewards fraud:


Many loyalty and rewards frauds start with phishing schemes to collect information to hack into members’ accounts.

Account takeovers

Fraudsters use stolen information to create or take over accounts. They drain accounts and use them to launch other frauds, such as requesting money from the family and friends of the victim.

Identity theft

Criminals use stolen credentials to create fake accounts on multiple platforms and institutions to accumulate or transfer loyalty points within or between accounts.

Insider threats

Since Loyalty and Reward programs tend to have lax security, insider fraud slips past. Current or former employees, contractors, or business partners can carry out fraudulent activity based on their knowledge of processes and practices.

With abundant opportunities, fraudsters get in and out and cause tremendous damage to victims, and place companies at risk.

Loyalty and Rewards Fraud Hurts Businesses Beyond the Bottom Line 

While loyalty and rewards programs fraud may not make the news as much as other breaches do, it does not mean that merchants and businesses don’t stand to lose in a big way. Businesses suffer from loyalty program fraud in four negative ways :

1. Loss of Customers

The entire point behind the programs is to drive loyalty and reward it. Loyalty fraud attacks cause massive losses in customer program participation. For example, many financial institutions buy billions of air carriers and travel-focused miles yearly. A major hit to one of these programs would cause a company to fold on the reputation damage alone.

2. Compromised Customer Data

Customer personal information like names, birthdates, SSNs, addresses, banking details, and card information can all be stored in loyalty and reward accounts. The information gained in an attack provides the essential aspects fraudsters need to launch even more significant attacks.

3. Stolen Revenue is Lost Revenue

Merchants get into a challenging position when fraudsters target their members. They may be forced to replace a customer’s stolen points (paying double) or risk losing a loyal customer. Both choices affect their bottom line.

4. Non-Refundable Chargeback Fees

Fraudulent chargebacks are a tried and true tactic fraudsters use. Personal information gained in a loyalty and reward program attack can stage thousands of chargebacks that fly under the radar. The sophistication of this fraud is so great that merchants simply take on these charges without disputing them. 

Why Is It So Prevalent?

As mentioned above, many of these programs have lax security and governance planning. Merchants may not see the need for comprehensive security since the essential parts such as eCommerce may exist outside its infrastructure where the platform or payments operator (ex. PayPal) secures it.

For this reason, loyalty and rewards programs typically lack the infrastructure and tools to protect accounts and data and track or verify account changes, such as Multi-factor Authentication (MFA), account takeover prevention tools, and customer verification processes (KYC). Can Detect Loyalty and Rewards Fraud Before it Happens

Fraud moves fast. New targets like loyalty and rewards fraud have become a billion-dollar sector for criminals. Fortunately, companies don’t have to accept loyalty and reward fraud. Here are four things companies can put in place to fight back:

  1. Deploy a KYC Verification Solution: When companies have a Know Your Customer solution, everything from transaction verification to fraud identification becomes easy.
  2. Real-time Transaction Monitoring: AI and Machine Learning eliminates the pain and expense of having human eyes manually sift through a high volume of transactions. Our platform surfaces potentially fraudulent transactions for staff to review instead of having them search for needles in haystacks.
  3. Update Your Program’s Terms of Service: Make sure your customers understand that you share in their best interests. Don’t be afraid to communicate this to them.
  4. Use MFA Logins: Fraudsters don’t like inefficiencies in their attacks. Making access more secure for your clients via Multi-Factor Access options lowers fraudsters’ target ranking. Fraudsters have to work double time to get enough information needed for MFAs, making it more likely for them to move on. can help you fight loyalty and rewards fraud by combining your customer data with billions of insights from unique data sources (available only to to make better risk decisions that save you time and money. 

Loyalty and rewards programs can be a great asset to your business, so don’t let fraudsters take advantage of them and siphon your profits. Learn how to prevent loyalty and rewards fraud against your company by booking a demo today.