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The Dark Side of Loyalty Programs: How Fraudsters are Pillaging Rewards

An estimated $3.1 billion in redeemed loyalty points are deemed to be fraudulent, according to the Loyalty Security Association. Yet half of all merchants say program fraud protection is a low priority. Mix the two, and we have a rise in loyalty program pillaging.

Loyalty program fraud takes a few forms that generally fall into one of four categories:

  1. Account pirating. These are hacks in which the perpetrator breaks into an account

  2. Knock-off accounts. The fraudster creates bogus accounts, often using stolen identities, and then accrues points, transfers them to other accounts in the portfolio, redeems them and even sells them.

  3. Transactional looting. An offspring of account pirating, transactional fraud takes place when point pirates steal information from the loyalty members’ credit card accounts, digital wallets or other payment methods linked to their memberships.

  4. Breaking policy. This is a practice that tragically may be performed by legitimate loyalty members. They seek and take advantage of loopholes in the policy, or weaknesses in the platform.

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