Customers Love Loyalty Programs…And So Do Fraudsters

Prevent Loyalty Program Fraud with Advanced Identity Validation

Loyalty programs have become a staple for more than 90% of companies, driving repeat purchases, strengthening customer relationships, and enhancing the overall customer experience. It’s about more than simply offering discounts, incentives, exclusive offers, and rewards—today’s loyalty programs are vital to gathering and leveraging data to drive everything from promotions to cross- and upselling. 

According to one brand study, 95% of loyalty program users say that being part of a company's loyalty program makes them more likely to shop with that company over other brands. This not only makes these programs key to customer retention rates, but also an effective strategy to acquire new customers. It’s no wonder that Starbucks attributes 40% of its total sales to its Starbucks Rewards program—that’s a pretty compelling reason to encourage loyalty program participation, not to mention the opportunities it creates to encourage visits and purchases with greater personalization.

While loyalty programs boost business for brands, they also present lucrative opportunities for fraudsters. According to Statista, loyalty fraud accounted for 27% of all fraud attempts experienced by online merchants in 2021 and now, with more loyalty programs than ever, the financial upside for criminals is increasing. The estimated cost of loyalty fraud to program operators is estimated to be more than $1 billion every year.

Loyalty programs are on fraudsters’ radar

Fraudsters increasingly are targeting loyalty programs, exploiting the growing pool of unprotected points for personal gain. With an estimated $48 trillion in unspent points globally, fraudsters see loyalty programs as a goldmine, leaving companies struggling to ensure points are redeemed by the rightful owners. Strengthening a company’s identity validation process—whether at enrollment or redemption—is crucial in protecting both customers and businesses from escalating losses.

In 2023, hacker Sam Curry uncovered critical vulnerabilities in Points.com, a platform managing points transactions for many major airlines. Among the risks Curry identified, frequent flyer program vulnerabilities were significant, allowing access to 22 million orders, personal data, and the ability to transfer points and modify accounts. Although the platform quickly addressed the issues, this highlights the need to validate the identity of anyone accessing and redeeming points through these loyalty programs.  

How do fraudsters gain access to loyalty programs and steal valuable points? 

Account takeover

An estimated 45% of loyalty program accounts are inactive or infrequently used, making them prime targets for fraud. Once fraudsters access customers’ accounts, they steal their points. Since these accounts are inactive or rarely accessed, the company doesn’t even know the activity is fraudulent.

Fake account creation

Fraudsters also can create fake accounts to abuse promotional offers, such as those that offer double points or the earning of introductory one-time points in large amounts. Then they resell these rewards on the dark web, transfer them to another account, or exchange them for gift cards and merchandise.

Redemption fraud

Because the redemption of points can be instantaneous and easy to liquidate, fraudsters use fake credentials to redeem them, a form of fraud that has become increasingly popular as companies focus on strengthening efforts to combat more traditional types of fraud (check, credit card, etc.).

How to prevent loyalty program fraud

Companies can safeguard loyalty program members and stop bad actors with trusted, transparent identity verification. This not only ensures that fraudsters don’t steal your customers’ points and rewards, but it also heightens customer confidence that the points they’re earning are protected. 

Intellicheck is the only identity validation platform that uses a unique and proprietary analysis of IDs to create trusted, real-time customer identity verification experiences. Our SaaS solution is used to validate IDs across a wide variety of industries—both in-person and digitally—and trusted by 28 state-level law enforcement agencies. We stop identity fraud everywhere, with more than 100 million people validated in North America each year.

Every day we’re protecting loyal customers, including more than 30,000 retail locations and five of the top twelve U.S. banks and credit card issuers. 

Ready to protect your loyal customers from loyalty fraud? Discover how Intellicheck’s unique identity validation approach delivers an instant, accurate, and fully automated solution for a positive customer experience. 

For more information, visit us at Intellicheck.com

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