What is promo abuse and loyalty program fraud?
Loyalty program fraud happens when a customer is abusing the terms and conditions of a loyalty program for financial gain. Promo abuse is a type of online fraud that involves a customer taking advantage of a business’s rewards, sales, and promotions.
What are the costs?
According to Staying Ahead of the Fight Against Fraud in Southeast Asia, over 75% of surveyed organizations acknowledged that each type of fraud they experienced over the past 12 months has had a moderate to significant financial impact on their business. Those that experienced promotion abuse reported a loss of 31% in their annual marketing spend as a result.
While merchants consider the allocation of funds to incentivize current customers or acquire new ones a necessary spend, all merchants expect a return on their investment. When fraud consumes a big chunk of your marketing budget, ROI is distorted.
Unfortunately, the costs of this fraud are so far reaching, they can affect a company’s reputation and opportunity for growth. Whether a company experiences a depleted inventory, or are forced to recalculate their distorted customer base, the results are the same. Fraudsters win, merchants lose.
Three steps to prevent promo abuse and loyalty program fraud
While eliminating promo abuse and loyalty program fraud in this ever-evolving digital landscape may not be possible, there are ways to prevent it.
1. Identify fraud early
One of the most common forms of promo abuse is the creation of fictitious accounts. The typical loyalty program fraudster may also create a synthetic ID, or else gain access via account takeover. Therefore, identifying a valid customer over a scammer should be done during the account opening process. Identity verification software is your ticket to seamless digital identity validation. Such tools allow you to analyze how each identity element (such as name, email, phone, etc.) behaves in each interaction. This enables an accurate assessment of a customer’s eligibility for any given promotion.
2. Balance customer experience with anti-fraud measures
The empowering data provided by a global identity verification solution gives businesses the ability to find that elusive balance between providing exceptional customer experience and fraud mitigation.
Imagine a workflow that fast tracks a “good” customer through the account opening or transaction with little to no friction. For those deemed ‘medium-risk’ this could be done by only adding step-up authentication (like sending a code to email or phone); and declining the “high-risk” account openings altogether.
3. Remember – you’re not alone
Remember that no single solution will solve all your problems. It is important to bring together your tools – and expertise – to best respond to the unique needs and challenges of your business.
The right partner will help you to analyze your data and, in the case of promo and loyalty abuse, steer you in the right direction when it comes to account opening solutions. Wait until your marketing department learns that their budget will be spent acquiring loyal customers – without being diverted by fraudsters!
