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LOYALTY FRAUD – POTENTIAL FOR ABUSE MAKES PROGRAMS VULNERABLE
The loyalty business is booming and with it the size of the prize for fraudsters. In 2012, the estimated value of unredeemed points in U.S. loyalty programs was $48 billion. More recent estimates of loyalty program liability have skyrocketed to $225 – $350 billion, making programs an ever more tempting target.
Loyalty fraud occurs when a reward program, run by a business to encourage brand loyalty, is abused or manipulated for unfair gain. The targets are the miles or points to apply toward free flights, upgrades, free hotel stays, digital gift cards and any high-value merchandise that can be easily used or re-sold for personal enrichment.
HIGH PROFILE LOYALTY FRAUD CASES
As loyalty fraud has grown in recent years, so have the number of high-profile fraud cases. The scale of the incidents ranges from an individual member gaming program rules, to hackers guilty of identity theft. The reward abuse can range from a free beverage to a free round-the-world airline trip in first class. Larger losses include those where an entire member database is hacked or an insider is involved. As you can guess, the cost of any fraud losses will vary based on the specifics of each incident, including factors such as fraud type, type of industry and the number of accounts impacted.
Below are a few of the public fraud and program gaming incidents that demonstrate the variety of potential threats:
TYPES OF LOYALTY FRAUD
From the examples shared above, you can see that loyalty program fraud comes in all shapes and sizes. Loyalty fraud is categorized into one of three main groupings:
Loyalty fraud loss can be a costly event for your business. With this in mind, it makes good business sense to put in place fraud prevention best practices. Following are a few of best practices to consider during program design and management that Kobie Marketing suggests.
LOYALTY FRAUD MANAGEMENT BEST PRACTICES
Kobie Marketing offers a multi-pronged loyalty fraud solution which encompasses the full loyalty program lifecycle – program design, program audit of terms and conditions, estimating your potential fraud exposure, and on-going fraud management best practices
Get in touch with your Client Services representative or email us at [email protected] to learn more about how we can help protect your loyalty program.
 2015 COLLOQUY Loyalty Census
 2017 https://www.kount.com/industry-solutions/travel-leisure-fraud-detection/loyalty
 https://blog.smile.io/loyalty-fraud-stop; https://blog.smile.io/when-customers-exploit-reward-point-programs
 https://www.flyertalk.com/articles/united-american-frequent-flyer-accounts-hacked-miles-stolen-in-cyber-attack.html; https://www.dallasnews.com/business/airlines/2015/01/12/cyberthieves-steal-miles-from-american-united-customers
 http://www.miamiherald.com/news/local/community/miami-dade/article74727227.html; https://www.flyertalk.com/articles/flyer-accused-of-stealing-260000-worth-of-aa-miles.html
The post Loyalty Fraud Cases & Categories for Fraud appeared first on Kobie Marketing | The Muse: A Loyalty Experience.
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