Customer Loyalty programs and strategies are an excellent way to increase engagement and gain new customers, but they are also a gateway for scammers and fraud. Brands’ definitions of fraud can range significantly - from simply sharing a loyalty number with a family member to fraudulent organizations selling user identities on the dark web. Some fraudsters exploit loopholes in the loyalty programs and “game” the system, while other users can earn a living doing this.
What was once a simple way to earn a free cup of coffee or save a few cents on gas has become a complex industry, one that fraudsters and gamers can profit from more than ever before.
What can companies do to combat this growing trend of loyalty fraud and gaming?
Loyalty360 spoke with supplier members to discuss the topic of fraud and gaming within loyalty programs, how it affects the industry and what technologies brands are using to discourage or dissuade fraud.
Loyalty fraud is as unique as the program
The type of customer loyalty program fraud is wide and varied. Brands experience fraudulent returns, multiple receipt scans, exploiting loopholes or sharing redemption codes. Some companies report instances where people screenshot coupons to use multiple times, or instances in curbside pickup with individuals using fraudulent credit cards.
One retailer reports a trend with the fraudster purchasing a product to earn the rewards, then immediately returning the product. Says Attila Kecsmar, CEO and Co-founder of Antavo, “The setup is simple; a purchase is being made, the rewards for the purchase are received and used, and then the culprit simply returns the purchase. In theory, rewards were given and used without spending a dime.”
Oliver Mitchell, VP of Sales for Brandmovers, sees a lot of receipt upload fraud. “Receipt Upload fraud can be somewhat rampant in CPG loyalty programs and promotions, between two and five percent of all uploads in loyalty. That percentage is even higher in instant wins or sweepstakes.”
And it isn’t just witnessed in loyalty rewards programs. Says Wanda Kauffman, Director of Technology Solutions and Privacy Lead for The Lacek Group, “Members file complaints at the call center with the intent to receive a goodwill points award because the customer is always right, even if they aren’t really deserving of the points.”
Robyn Zeller, Director of Strategic Service, at The Lacek Group, adds, “Members or employees enroll business accounts to appear as individual member accounts to bypass program rules regarding businesses not being eligible, and overshadow higher transaction volume.”
How COVID changed the loyalty fraud game
With the move away from in-person transactions and to a digital landscape, it was easier than ever for members to cheat the system.
Lacek Group saw an increased frequency in member complaints to the call center for goodwill points.
Marianne Bunn, Applied Machine Learning Product Owner, at Clutch adds, “We are seeing customers add fake family members to their account or refer fake friends when referral bonuses are on the line. This makes it more difficult to catch fraudsters because they can live anonymously online and are more willing to try to game the system when no one is watching. Even when clients shut down a bad actor’s account, they can create a new persona and do the same things over again.”
Clutch also witnesses incidences where social media influencers shared their loyalty accounts with their online followers.
How brands approach fraud and gaming
While some brands are okay with certain forms of gaming and fraud (ex:family members sharing accounts), there needs to be a limit on the forms of fraud that have the greatest impact on the brand.
Kecsmar says, “Companies shouldn’t be too strict, but they have to be smart at the same time. If they notice that someone is gaming the system, trying to take advantage unfairly, they have to make alterations so regular customers will not suffer a disadvantage.”
Bunn adds, “Allowing family members to share an account supports one aspect of the bottom line, but the brand should also ensure that fraudsters can’t work to compromise a customer’s account.”
At Clutch, the most impactful way to limit fraud is to think like a fraudster. Brands can limit the impact of fraud by implementing features such as unique randomized single use coupon codes, login security features, ML-driven segments identifying possible fraudulent accounts or possibly compromised accounts.
The Lacek Group expresses frustration at not having a conducive system for fighting loyalty fraud. “There isn’t a standard practice or requirement for managing fraud for loyalty programs, unlike the rigor applied and required for Sarbanes Oxley (SOX) or Payment Card Industry (PCI), so organizations are left to figure it out for themselves.”
How do suppliers help their clients identify fraud within the reporting processes?
Mitchell at Brand Movers offers this advice for tackling receipt fraud:
- Require the participant to provide a UPC/barcode alongside the receipt.
- Have a robust list of reasoning parameters around image visibility and resolution, dates and duplicates
- Categorize infractions as minor, moderate, or major and have processes in place for each type, such as submitting a photo that is not a receipt, modifying a receipt through photo editing software or blatant creation of fake receipts
- Limit the number of submissions or attempts within a specific time frame, and create a list of banned retailers.
- Prevent multiple purchases within the same day.
At Clutch, Bunn says, “All of our brands, from small business to enterprise level, can benefit from the power of a machine learning (ML) segment that identifies possibly fraudulent accounts. This segment is more than business rules and gets more intelligent with more data over time.”
The Lacek Group helps their clients identify fraud through program design, program rules, ongoing analytics and KPIs. “Typically, some form of AI or ML is needed to fully scale an effective fraud prevention solution,” says Zeller, adding, “Training on data security and data privacy practices occurs within organizations; however, training specific to detecting and preventing fraud activity is an opportunity. There is also an opportunity to educate and encourage members to be diligent in protecting their member account as they would a bank account.”
Antavo schedules checks for the most common fraudulent patterns. “Clients can create automations for specific patterns,” Kecsmar explains. “For example, if someone enlists a prominent number of free shippings or if there is an in-store purchase made outside of opening hours.”
Fraud not limited to customers
Loyalty fraud is often linked to the outside, but brands also see an alarming number of internal fraudsters. According to a
Comarch CRM & Marketing report on Loyalty Fraud,fraudsters who had been with the company longer, stole twice as much. Coupled with the fact that over the past 10 years, prosecution for occupational fraud declined 16%, it is safe to say that internal fraud is on the rise.
According to Kauffman, “There is an opportunity for better documentation of loyalty program policies, including the roles and responsibilities of employees interacting with the program and its members. Employees need to have a clear understanding of the ramifications for employee fraud, such as probation, restitution and termination. Documented program policies and employee fraud ramifications combined with ongoing training will help hold employees accountable if they break the rules.”
Bunn had this to say.
“We are seeing loyalty program fraud from both customers and employees. We are seeing employees adding their loyalty accounts to transactions when a customer isn’t a part of the program.”
However, the internal fraud at Clutch is not always self-serving. Says Bunn, “We are even seeing employees doing the same thing but with a known charity’s card or someone in need. Employees may believe their Robin Hood act is harmless, but brands usually disagree.”
How should brands be training their employees regarding the impact of fraud?
At Antavo, the company training about the loyalty program itself can be helpful, so loyalty program managers and store employees will be aware of the possible risks.
The Lacek Group incorporates loss prevention tactics into the corporate security/compliance programs with regular mandatory training, and that training should include statistics around lost revenue as a result of employee fraud.
Personal involvement is important to employees at Clutch. Says Bunn, “I think brands should also bring in their front-line employees to help them identify suspicious loyalty program behaviors and patterns that the brand may not be aware of. When everyone feels like they have an important role to play for a common cause, they’re more likely to care.”