How to Protect Customers from Loyalty Program Fraud

Loyalty programs are a cornerstone of customer retention strategies, rewarding users for their continued engagement. However, the increasing sophistication of fraudsters has turned these programs into lucrative targets for exploitation. In 2024, loyalty program fraud surged by a staggering 40%, with fraudsters exploiting weak security measures to steal points, rewards, and incentives. Businesses that fail to address this growing threat risk losing loyal customers and eroding general trust in their brand.

What is loyalty program fraud?

Loyalty program fraud occurs when fraudsters manipulate rewards systems to gain unauthorized access to points, discounts, or benefits. This type of fraud can take many forms, from account takeovers to fake account registrations, all aimed at exploiting vulnerabilities in loyalty programs. At its core, loyalty program fraud capitalizes on three key weaknesses:

• Weak authentication measures: poorly protected login systems make it easy for fraudsters to breach accounts.
• Lack of real-time monitoring: many programs lack continuous monitoring to detect unusual activity.
• Recycled or fake accounts: fraudsters use fake email addresses or compromised customer data to create multiple accounts and exploit sign-up bonuses or promotions.

With the rise of online grocery shopping and travel bookings, loyalty program fraud has become more widespread, often involving organized groups that use automated tools to steal bonuses and points at scale. 

What industries are targeted by loyalty program fraudsters?

Loyalty program fraud is a widespread issue that affects businesses across multiple industries, particularly those with customer rewards programs. Fraudsters exploit the vulnerabilities in loyalty systems, targeting companies where customer incentives, points, or rewards are easy to access and manipulate. Below are the primary industries frequently targeted by loyalty program fraudsters:

Online travel

The online travel industry is one of the most vulnerable to loyalty program fraud, making it a prime target for fraudsters. With the rise of travel booking platforms and airline loyalty programs, fraudsters often attempt to steal or manipulate rewards points associated with these accounts. Some key tactics used in online travel loyalty program fraud include:

• Account Takeovers (ATO): fraudsters hack customer accounts to redeem points for free flights, hotel stays, or upgrades, often reselling these rewards on the black market.
• Fake bookings: fraudsters exploit loyalty points to make fraudulent bookings, re-routing or canceling them after transferring benefits to another account.
• Synthetic identities: fraudsters create fake accounts to exploit sign-up bonuses and promotions offered by travel platforms, inflating costs for the business while delivering no real value.

Loyalty program fraud in the travel sector not only damages customer trust but also disrupts the customer experience, leading to reputational harm for companies in this competitive industry.

Other industries prone to loyalty program fraud

As of late, other industries have found themselves as the target for this type of fraud, including:

• Retail and e-commerce: fraudsters exploit reward programs in retail platforms, stealing points or abusing promo codes to acquire goods fraudulently.
• Hospitality: hotel chains and restaurants with loyalty programs are frequent targets for account takeovers and reward misuse.
• Gaming and entertainment: fraudsters manipulate loyalty systems in gaming platforms to gain free credits or exclusive in-game benefits.
• Financial services: banks and neobanks offering cashback rewards or points systems face risks from synthetic accounts and reward fraud.
• Betting and gambling: fraudsters use loyalty incentives in gambling platforms to claim fraudulent rewards or manipulate bonuses.

Industries that are the most at risk should promptly identify and solve common vulnerabilities in their systems, working proactively to mitigate fraud. While each sector faces some unique challenges, the need for stronger loyalty program fraud prevention measures is widespread.

What are some examples of loyalty program fraud?

Loyalty program fraud manifests in a variety of forms, targeting both businesses and their customers. Fraudsters exploit vulnerabilities in loyalty systems to steal rewards, manipulate promotional offers, and gain unauthorized access to accounts. Below are some key examples of loyalty program fraud, with a focus on the online travel industry:

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Account takeover fraud (ATO)
Account takeover fraud is one of the most common forms of loyalty program fraud. Fraudsters gain access to customer accounts by using stolen login credentials, often obtained through phishing attacks, data breaches, or brute force attacks. Once inside, they can redeem points for high-value rewards, such as flights, hotel stays, or travel upgrades. They can also transfer points to other accounts for personal use or resale. In addition, fraudsters can change account information to lock the rightful owner out of their account.

In the online travel industry, ATO fraud is particularly damaging, as stolen points are often converted into tangible benefits that can be resold, leading to direct financial losses for companies and eroding customer trust.

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Fake account creation and synthetic identities
Fraudsters create fake accounts or use synthetic identities to exploit loyalty programs. These accounts are often designed to take advantage of sign-up bonuses. This denotes fraudsters registering multiple accounts and claiming promotional rewards repeatedly. Moreover, they can exploit referral programs by generating fake referrals to amass points or rewards.

This type of fraud is especially problematic for industries like online travel, where loyalty points tied to bookings or promotions can lead to significant financial exposure.

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Bonus and incentive abuse
Fraudsters target promotions or incentives meant to attract loyal customers. Examples include abusing discount codes; essentially, fraudsters use multiple fake accounts to exploit limited-time discounts or rewards. Another instance is where fraudsters carry out cross-account exploitation - what this involves is transferring or pooling loyalty points from fake accounts to redeem high-value rewards. For example, in travel booking platforms, fraudsters might exploit “book now, earn later” promotions, canceling bookings after rewards have already been earned and transferred.

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Bot attacks and automated fraud
Automated tools, such as bots, are used to exploit loyalty systems at scale. Fraudsters employ bots to:

• Test multiple login combinations to gain access to accounts.
• Register fake accounts en masse to claim promotional offers.
• Redeem rewards rapidly before fraud detection systems can catch anomalies.

The use of bots is especially prevalent in online travel, where high-value rewards make these programs an attractive target for organized fraud rings. That’s why bot mitigation is important.

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‍Cross-industry fraud
Loyalty program fraud isn’t confined to one sector. Fraudsters often repurpose stolen points or rewards from one industry in another. For instance:

• Points stolen from travel platforms might be sold online or converted into gift cards.
• Fraudulent sign-ups on one platform might exploit rewards to fund activities on another.

These examples highlight how loyalty program fraud can take many shapes, making it essential for businesses to implement comprehensive security measures that protect both their systems and their customers.

How can you protect customers from loyalty program fraud?

Protecting customers from loyalty program fraud requires a multi-layered approach that combines advanced technologies with proactive security measures. By leveraging digital footprint analysis and OSINT checks, businesses can detect and prevent fraud while maintaining a seamless user experience. Below are key methods to safeguard customers from loyalty program fraud:

Strengthen login authentication
Unauthorized access is one of the primary entry points for loyalty program fraud. Implementing robust login authentication mechanisms can significantly reduce the risk of account takeovers (ATOs).
Key methods include, say, behavioral data analysis, which denotes monitor behavioral patterns like typing speed, mouse movements, and time spent on login pages to detect anomalies in real time. Device fingerprinting is another method, and it involves identifying and flagging suspicious devices attempting to log in, ensuring only authorized users access accounts.

Leverage IP address and geolocation analysis
Analyzing IP address data helps businesses identify risky login attempts and transactions. For example, VPN and proxy detection: detect and block attempts to mask true locations, as fraudsters often use these tools to bypass location-based security measures. Geolocation flags are one more effective way of highlighting login attempts or transactions originating from high-risk regions known for fraudulent activity. Combining geolocation data with other signals, such as device and browser behavior, creates a more comprehensive view of user activity.

Reverse email lookup 
Fraudsters often rely on fake or compromised email addresses to exploit loyalty programs. Using reverse email lookup can help detect suspicious accounts by analyzing aspects such as email domain trustworthiness. Part of this process is to verify whether an email domain is disposable, temporary, or associated with fraudulent activity. Another possibility is data breach correlation - i.e. checking if the email address has been exposed in prior breaches, increasing the likelihood of it being compromised. Of course, another crucial element of email analysis is social media and web presence. In other words, you can confirm the email’s association with legitimate online services or accounts to assess credibility.

These insights ensure only genuine customers participate in loyalty programs, reducing the risk of abuse.

Preventing loyalty program fraud with Trustfull

Trustfull’s identity intelligence platform offers a suite of advanced features designed to combat loyalty program fraud effectively. These tools provide businesses with actionable insights and a comprehensive understanding of user behavior, ensuring the integrity of their loyalty programs.

Behavioral analysis
Trustfull’s behavioral analysis tools evaluate user actions and patterns to identify anomalies that may indicate fraudulent activity. It is extremely helpful to gather real-time behavioral data, so businesses can spot irregularities that typical security measures might miss. Key metrics include:

• Mouse movements: tracking unnatural or erratic cursor movements that deviate from standard user behavior.
• Scroll activity: analyzing scrolling patterns for consistency and to detect automated bot activity.
  time on page: measuring the duration of user interaction to identify suspiciously quick or delayed responses.
• Typing speed and patterns: assessing keystroke dynamics to detect impersonation or bot activity.

These metrics not only help detect fraud but also provide a heatmap-like view of user activity, offering detailed insights into potential threats.

Device & IP intelligence
Trustfull’s platform leverages advanced device and IP intelligence to uncover fraudulent activities and ensure only legitimate users access loyalty programs. Key features include:

• User-agent analysis: identifying mismatched or suspicious browser and operating system details.
• Spoofing detection: detecting attempts to manipulate device characteristics, such as fake browser or operating system data.
• Browser extensions: flagging suspicious or unauthorized extensions commonly associated with fraudulent activity.
• VPN, proxy, and TOR detection: Highlighting attempts to mask true geolocation or bypass location-based restrictions.

Introducing a mix of device and IP intelligence with behavioral insights uncovers a new layer of defense against fraud that operates silently in the background.

To discover more about how these layers can be set up and if it works for your organization, please reach out to our fraud prevention experts.