New type of loyalty fraud in the headlines (again)

by Guest Contributor 4 min read February 22, 2016

loyalty fraud

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.

MRCIf 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.

Related Posts

Why Innovation Matters for Members First Credit Union

Learn how Members First Credit Union uses innovation and data-driven insights to better serve members and expand financial opportunity.

July 24, 2026 by Scarlet Nickel
Ask the Expert: Unlocking the ROI of alternative data with Natasha Madan and Julius Heim

A visibility gap lenders can't afford to ignore Alternative data is often associated with thin-file or credit invisible consumers. But its value extends far beyond those segments. Experian's Clarity Services database includes approximately one in five credit-active consumers, including one in four consumers with prime-and-above credit profiles. That means lenders may be missing important signals, not only for emerging borrowers, but also for applicants who appear well qualified using traditional bureau data alone. Consider two consumers with the same credit score. Based on traditional credit data, they may appear equally creditworthy. But when Clarity data is added, one consumer may demonstrate stable repayment behavior while another shows recent defaults on alternative finance products. The credit score hasn't changed, but the decisioning context has. That's where alternative data creates value: helping lenders distinguish between consumers who look similar on paper but represent very different levels of risk and opportunity. In this Ask the Expert session, Experian’s Julius Heim, Vice President of Analytics Product Build, Innovation and Scores, and Natasha Madan, Senior Director, Analytics Consulting, explain how different alternative data assets solve different business challenges and why the greatest return comes from using them together throughout the credit lifecycle. What that visibility gap is really costing lenders Better visibility matters because every lending decision carries consequences. Without alternative data, lenders may approve applicants whose repayment behavior suggests elevated risk but isn't reflected in a traditional credit file. Without cash flow insights, they may decline consumers who appear thin file on bureau data despite demonstrating strong income and responsible financial management. The result is a two-sided cost: avoidable bad debt on one side and missed growth opportunities on the other. But ROI extends beyond approvals alone. It also appears through stronger marketing strategies, improved conversion, reduced friction and more precise risk segmentation throughout the lending lifecycle. "ROI can mean many things ... marketing to the right people, achieving better approval rates, reducing risk, getting less friction and overall profitability."Julius Heim, Vice President of Analytics Product Build, Innovation and Scores Where alternative data creates ROI Improve approval strategies Use additional consumer signals to recover creditworthy applicants while avoiding unnecessary declines. Reduce portfolio risk Identify elevated repayment risk earlier through enhanced visibility beyond traditional bureau data. Improve portfolio performance Increase conversion, reduce friction and strengthen profitability across the credit lifecycle. Different data. Different jobs. Not all alternative data solves the same problem. Clarity Services can help lenders strengthen decisions early in the customer journey. It provides additional visibility during prospecting and acquisition, helping identify potential risk before an application moves through the underwriting process. Cash flow insights can provide value in a different way. When traditional credit information offers part of the picture, consumer-permissioned cash flow data can provide greater insight into income, spending patterns and financial capacity. That makes it especially valuable as a second look during underwriting. Together, these complementary data assets help lenders improve decisioning throughout the credit lifecycle. They can support acquisition, underwriting, account management and collections while building on the trusted foundation of traditional bureau data. Research also continues to demonstrate measurable lift when cash flow insights are combined with traditional credit information. "I recently did a study with a client where we actually saw a 20% lift in KS [Kolmogorov-Smirnov] above and beyond credit bureau data. Again, the bureau data itself was very predictive. But even from the cash flow data, we still got a 20% lift, which is an amazing stat." Julius Heim, Vice President of Analytics Product Build, Innovation and Scores The greatest value comes from using these data sources together for a more holistic consumer view. Start with proof, then build Adopting alternative data doesn't have to begin with a large transformation. A practical first step is a data study. By comparing current decision strategies with enhanced data, lenders can identify where additional visibility creates measurable lift within their own portfolios. This approach allows institutions to validate results before making broader operational changes. Every lender has different workflows, technology environments and business priorities. A flexible implementation strategy helps organizations incorporate new data in ways that support existing processes rather than disrupting them. Three ways to get started Run a data study Benchmark current decision strategies and quantify potential lift. Start simple Begin with targeted data attributes or proven scores before expanding to more advanced use cases. Build with confidence Scale implementation based on measured business outcomes and organizational priorities. This approach allows lenders to validate results, build confidence and expand their strategy over time. Explore alternative data with a trusted partner Every lending decision benefits from better consumer insight. Experian helps lenders combine trusted credit data with alternative data, cash flow insights and advanced analytics to strengthen decisioning, improve portfolio performance and uncover new opportunities for growth. Whether you're evaluating alternative data for the first time or expanding an existing strategy, Experian can help you identify where additional consumer insight can create measurable business value. Learn more Contact us About our experts Julius Heim Vice President of Analytics Product Build, Innovation and Scores, Experian Julius Heim works at the intersection of financial services, analytics and innovation. He focuses on leveraging data to drive smarter decision-making and support more inclusive financial ecosystems. Julius brings a practical perspective on how organizations can translate insights into real-world impact, with particular interest in emerging trends across fintech, credit, and the use of alternative data, such as cash-flow data, across the credit lifecycle. Previously, he served as Head of Analytics on the lender side and held roles in insurance analytics earlier in his career. Natasha Madan Senior Director, Analytics Consulting, Experian Natasha Madan partners with lenders to drive smarter, data-driven credit and risk decisions. She specializes in leveraging alternative data and advanced analytics to help organizations improve portfolio performance, optimize customer acquisition, and expand responsible access to credit. During her 15 years at Experian, Natasha has held leadership roles spanning data analytics, product analytics and consulting, giving her a broad perspective of how data can be leverage to solve complex business challenges. She has worked with a diverse range of lenders – including banks, credit unions, fintechs and specialty finance companies to develop analytics strategies that optimize customer acquisition, underwriting and portfolio management. Natasha is passionate about helping organizations unlock the full potential of data to improve both business outcomes and consumer financial inclusion.

July 24, 2026 by Julie.JLee@experian.com
Advancing Homeownership Through Partnership 

Learn how HomeFree-USA and Experian partner to expand financial education, strengthen communities and help consumers achieve homeownership.

July 22, 2026 by Scarlet Nickel