As Loyalty Fraud Skyrockets, Resources to Combat it are Lacking

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Fraud in loyalty programs has increased 89% over the past year. Loss prevention specialist Chargebacks911 predicts an increase in fraud as merchants’ and credit card issuers’ affinity programs become ever more competitive.

There will be more and more businesses starting credit card affinity programs. This will increase the potential for fraud and theft of loyalty rewards, which is already becoming a significant challenge for loss prevention professionals

Loyalty fraud, the misuse or theft of loyalty program rewards points, has increased 89% since this point in 2019, rising to an estimated loss of $1 billion.(1) While approaches to loyalty fraud vary widely, says Monica Eaton-Cardone, co-founder and chief operating officer (COO) of Chargebacks911, the most common methods are account takeover, in which fraudsters hack into existing member accounts, and new account fraud, in which criminals create fake accounts, often with stolen identities, and use them to accumulate and monetize reward points.

A recent study, in fact, reveals that 45% of loyalty program accounts are inactive, making it easy for fraudsters to hack into them undetected. The same study shows that 42% of merchants lack the internal skills to prevent loyalty fraud and abuse. (2) Meanwhile, loyalty points, which are in effect a currency, can be redeemed by fraudsters either for merchandise such as airline tickets, or on the black market as cash.(3) Loyalty programs have grown steadily in recent years, and consumers have accumulated an estimated $48 trillion of unspent loyalty points globally.

On the consumer side, there is also a type of loyalty fraud called policy abuse, in which consumers overshare promotional codes or coupons, violating merchant policies and illegitimately obtaining program rewards. (4) “Given the continued popularity of affinity relationships and loyalty rewards,” says Eaton-Cardone, “there will be more and more businesses starting credit card affinity programs. This will increase the potential for fraud and theft of loyalty rewards, which is already becoming a significant challenge for loss prevention professionals.”

The travel and hospitality industries, Eaton-Cardone predicts, will also experience a burst of super-cobranded cards, with retail, restaurant, attraction, and event brands joining together to target highly lucrative subsets of consumers who travel for work, family vacations, or even adventure/extreme vacations. The existence and proliferation of these super-cobranded accounts will in turn stimulate the energy and imagination of loyalty fraudsters.

To combat this potential surge in fraud, issuers may enforce stricter regulations. “I predict there will be more and more restrictions as issuers continue to compete against each other for long-term, loyal cardholders,” says Eaton-Cardone. “For their part, consumers will need to read the fine print more carefully than ever when signing up for credit cards with these opportunities.” Chargebacks911, a dispute mitigation and loss prevention firm recognizes that the major contributors to the fraud problem include a “concierge attitude” on the part of credit card issuers, who hesitate to impose additional security restrictions on consumer behavior, and widespread inattention to rewards point balances on the part of consumers themselves. So, as card issuers continue to strive to act as concierges to their customers, making the consumer experience as effortless as possible, Eaton-Cardone expects greater attention to fraud, including loyalty fraud, on the part of both card issuers and merchants.

About Global Risk Technologies and Chargebacks911:  

Chargebacks911 is a division of Global Risk Technologies, which is internationally recognized as a leading provider of comprehensive risk management solutions to the payment processing industry. With offices in Europe and the United States, Global Risk Technologies manages over 200 million transactions worldwide each month. Chargebacks911 is headquartered in Tampa Bay, Florida, and specializes in chargeback mitigation and dynamic loss prevention. Founded by merchants in direct response to rising chargebacks and friendly fraud, Chargebacks911 combines insider expertise with proprietary technology and deep analytics to isolate threats, resolve retailers, today thousands of businesses rely on Chargebacks911’s scalable, customizable and fully turnkey solutions to achieve sustainable growth and guaranteed ROI. For more information, visit http://www.chargebacks911.com

About Chargebacks911/The Chargebacks Company:

Chargebacks911 empowers businesses to combat constantly evolving fraud tactics and mounting customer disputes that directly threaten profitability. Operating as The Chargeback Company in Europe, Chargebacks911 has pioneered effective, industry-leading solutions designed to reduce chargeback fraud, alleviate processing costs, mitigate risk and recover revenues. 

The company’s unparalleled expertise and proprietary technology have earned three consecutive CNP Customer Choice Awards for Best Chargeback Management Solution, three successive AI Lions’ Den Awards for Best Airline Industry Solution, and Gold and Silver Stevie Awards from the American Business Awards (ABA). With innovative and highly scalable services ranging from Intelligence Source Detection™ (ISD) to Tactical Representment, Chargebacks911 uncovers the true source of chargebacks, battles unjustified disputes, rescues lost revenue, safeguards reputations, and defends against relentless, ever-changing cyberthreats. Visit http://www.Chargeback911.com

1.    “Loyalty program fraud costs business $1bn annually,” Appliance Retailer, February 6, 2020, applianceretailer.com.au/2020/02/loyalty-program-fraud-costs-business-1bn-annually/.
2.    “Loyalty Programs and Fraud—Do You Know Its Impact?”, Power Retail, February 5, 2020, powerretail.com.au/in-focus/loyalty-programs-and-fraud/.
3.    Riley, Brian, “Credit Card Rewards: A Common Currency with Varying Value,” Payments Journal, October 30, 2018, paymentsjournal.com/credit-card-rewards-a-common-currency-with-varying-value/.
4.    Dusane, Ameya, “Forter Introduces its Machine Learning-based Loyalty Program Protection Solution,” Martech Advisor, February 5, 2020, martechadvisor.com/news/ecommerce/forter-introduces-its-machine-learning-based-loyalty-program-protection-solution/.

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