PRESENTS

THE RISE OF

LOYALTY FRAUD
Loyalty accounts have become defacto bank accounts. But the lack of a recognized
cash value for rewards currency has meant a relative lack of regulation and legal
protection. This, combined with the high real value and enormous number of
accounts, has put loyalty programs on the fraudsters radar.

83% of consumers
belong to a loyalty
program.

3.3 bil.

In 2014, the
average U.S.
household
belonged to 29
loyalty programs.

$48 bil.

loyalty program
members in the U.S.

in U.S. loyalty
currency

3 out of 4 loyalty
members expect
the security on
their loyalty
accounts to be in
line with that of
their financial
institution.

Criminals are learning how to turn

rewards programs, points, and
prepaid cards into cash.
GARTNER

THE SPREAD OF LOYALTY FRAUD

Industry observers have identified three main approaches to fraud.

2. Insiders

1. Hackers

3. Customers

Employees and
other insiders who
have access and
know the system can
scam the program.

Organized criminals,
hackers and others
who know the value
of loyalty currency
exploit programs
security holes and
weak customer
passwords to steal
miles and points.

Customers can
commit fraud by
gaming the
system
double dipping
between
multiple frequent
flyer programs
for instance.

From 2013 to 2014, there was a 78%

increase in lost or stolen data records.
GEMALTO REPORT

THE HIDDEN COST OF LOYALTY FRAUD

Loyalty fraud costs your business
more than just money.
Replacement of stolen points, miles
and rewards is the obvious cost. But
theres time and reputation, too.
Factor in administrative hours to
field negative comments across
multiple social media channels and
lost customers and you start to see
the real cost of fraud.

HIDDEN COSTS
Reputation

79%

told others about

their negative
experience.

Social
media
impacts

OBVIOUS COSTS

One bad tweet

can cost you up
to 30 customers.

Lost business

82%

ped
of customers stop
ith a
doing business w
company due to a
e.
negative experienc

Replacements

Administering investig
a
& account monitoringtions

s
emed points, mile
Fraudulantly rede
t be replaced.
and rewards mus

the cost of data breaches [is] likely

to hit $2.1 trillion globally by 2019,
four times the 2015 figure
JUNIPER RESEARCH

GUARDING AGAINST FRAUD

Until now, about 80 percent of loyalty fraud has been discovered

accidently. A better strategy involves businesses and their customers
working together to create a cycle of protection.

BUSINESS SIDE

CB14QZ

Enter the
verification code
sent to your phone

CUSTOMER SIDE

PASSWORD

Adopt more
complex methods
of identity
verification,
like two-step
authentication.

123456
Weak!

Customer passwords should be:

CB14QZ

Strong
Not easily guessed
Develop
monitoring
and risk scoring
procedures.

Unique
Not used for any other account

Changed frequently
As often as once a month

The average individual consumer has

26 online accounts but only five passwords.
The top two most-used passwords in 2013
were 123456 and password.
SPLASHDATA
Sources: Gartner, Inc.; Daily Break; Cell Point Mobile; Colloquy: 2015 Loyalty Census; FIS Payments Leader; Harvard Business Review;
Airline Information; 41st Parameter; Gemalto; Splashdata; bobsullivan.net
GRAPHIC 2015 CONNEXIONS LOYALTY BRAND COMMUNICATIONS