Scammers swarm loyalty accounts as merchants focus defenses elsewhere
Of all of the valuable consumer assets that fraudsters like to steal, loyalty or rewards points or cash is becoming a favorite. In the past year, loyalty fraud saw an 89% increase in attacks, according to the Forter Fraud Attack Index.
Fraud trends build momentum through a domino-like effect: Criminals steal some personal or payment credential data, and their success allows them to more easily attack assets that consumers value, but rarely check.
"If you ask why there are more attacks on loyalty accounts, you have to also ask how often do consumers check their credit card or bank account, and how often do they check their rewards points account?" Gary Schwartz, vice president of brand for e-commerce fraud prevention provider Forter, asked. "Most never do that."
Consumers not paying attention results in as much as $48 trillion in unspent loyalty points globally, Forter research estimates, combined with 45% of those accounts being inactive.
"Merchants and security providers are getting better at protecting fraud on credit card transactions, so fraudsters are looking at other ways to commit fraud," Schwartz said.
Professional fraudsters commit loyalty fraud, but so do company employees who might on occasion submit their own e-mail addresses when registering consumers for loyalty programs. In addition, consumers commit their own loyalty fraud, sometimes signing up 10 fake accounts to get the free giveaway associated with signup.
Because of that, Forter is adding the Forter Loyalty Program Protection software to its platform to protect high-value rewards programs and give merchants more confidence in launching these types of benefits.
Loyalty fraud certainly is not a new phenomenon, but is a growing one, said David Mattei, senior analyst with Aite Group.
"Stealing of points or airline miles has been going on for a long time," Mattei said. "But merchants sometimes let defenses down a little bit, with maybe the restrictions on your fraud system being much more lenient for loyal customers."
Part of the lure of attacking a loyalty program is that they generally represent the most loyal customers of a card brand or retailer, which translates to high spend and valuable rewards.
"Fraudsters are attracted to most any rewards, but they focus on those that sell high-value products and offer high-value rewards," Mattei added. "It could be in airline miles, or electronics stores, or any phone carriers, as those are the higher targets."
The work of a security firm like Forter represents the merchants' desire to have more due diligence on the redemption side of the loyalty process, to assure the consumer redeeming points is who they say they are, Mattei said. "A lot of the vendors mitigating merchant fraud are at the transaction level, but loyalty protection is more of a niche."
Forter's new protection provides an extra layer on its fraud-prevention platform, taking the same detailed steps to identify unsavory individuals and their transactions — with the goal of not causing friction or false positives.
"Our platform provides a level of accuracy in that it aggregates all information from all merchants on the platform, giving a wider view and understanding of the sets of customers who interact with these merchants," Forter's Schwartz said.
Forter looks at every transaction, to help the artificial intelligence understand what the legitimate behavior looks like as well as the illegitimate behavior.
"We are measuring and protecting every single point of that online journey, from when someone signs up for a new account, makes a transaction and leaves the site," Schwartz added. "And we are making appropriate decisions at every point."
Ultimately, the system goes over as many as 6,000 data points in determining if it needs to raise a red flag and not authorize an attempt to cash out loyalty points from a person who may be an impersonator.
"For us, our competitive space has focused on card transactions, but we are moving unseen on account takeover, loyalty spend and policy abuse," Schwartz said. "We hope the merchants think about it as us building a place where they should feel confident in launching new products and entering new markets without worrying about fraud."
Too often, a merchant may hesitate to advance a loyalty program if they have had fraud problems with it in the past and absorbed the liability costs of returning money to customers.
"Loyalty fraud protection frees up merchants to think about offering new things that will help them in their competitive set," Schwartz said. "And that's what we want, for merchants to have that confidence to safely grow their business."