Loyalty fraud and the customer experience
Criminals continue to amaze me. Not surprise me, but amaze me with their ingenuity.
I previously wrote about fraudsters’ primary targets being those where they easily can convert credentials to cash. Since then, a large U.S. retailer’s rewards program was attacked – bilking money from the business and causing consumers confusion and extra work. This attack was a new spin on loyalty fraud. It is yet another example of the impact of not “thinking like a fraudster” when developing a program and process, which a fraudster can exploit. As it embarks on new projects, every organization should consider how it can be exploited by criminals. Too often, the focus is on the customer experience (CX) alone, and many organizations will tolerate fraud losses to improve the CX. In fact, some organization build fraud losses into their budgets and price products accordingly — effectively passing the cost of fraud onto the consumers.
Let’s look into how this type of loyalty fraud works. The criminal obtains your login credentials (either through breach, malware, phishing, brute force, etc.) and uses the existing customer profile to purchase goods using the payment method on file for the account. In this type of attack, the motivation isn’t to receive physical goods; instead, it’s to accumulate rewards points — which can then be used or sold.
The points (or any other form of digital currency) are instant — on demand, if you will — and much easier to fence. Once the points are credited to the account, the criminal cashes them out either by selling them online to unsuspecting buyers or by walking into a store, purchasing goods and walking right out after paying with the digital currency.
A quick check of some underground forums validates the theory that fraudsters are selling retailer points online for a reduced rate — up to 70 percent off. Please don’t be tempted to buy these! The money you spend will no doubt end up doing harm, one way or another.
Now, back to the customer experience. Does having lax controls really represent a good customer experience? Is building fraud losses into the cost of your products fair to your customers?
The people whose accounts have been hacked most likely are some of your best customers. They now have to deal with returning merchandise they didn’t purchase, making calls to rectify the situation, having their personally identifiable information further compromised and having to pay for the loss. All in all, not a great customer experience.
All businesses have a fiduciary responsibility to protect customer data with which they have been entrusted — even if the consumer is a victim of malware, phishing or password reuse.
What are you doing to protect your customers? Simple authentication technologies, while nice for the CX, easily can fail if the criminal has access to the login credentials. And fraud is not a single event. There are patterns and surveillance activities that can help to detect fraud at every phase of your loyalty program — from new account opening to account logins and updates to transactions that involve the purchase of goods or the movement of currency.
As fraudsters continue to evolve and look for the least-protected targets, loyalty programs have come to the forefront of the battleground. Take the time to understand your vulnerability and how you can be attacked. Then take the necessary steps to protect your most profitable customers — your loyalty program members.
If you want to learn more, join us MRC Vegas 16 for our session “Loyalty Fraud; It’s Brand Protection, Not Just Loss Prevention” and hear our industry experts discuss loyalty fraud, why it’s lucrative, and what organizations can do to protect their brand from this grey-area type of fraud.