Financial institutions have upped the ante when it comes to protecting customers against fraud. Each year, banks employ increasingly sophisticated measures making it more and more difficult for thieves to penetrate customer accounts. And it’s working. The American Bankers Association reports that for every $10 in attempted deposit account fraud, banks’ anti-fraud protection measures stopped $8.
As a result, fraudsters have shifted their sights to another industry, one worth billions: loyalty programs.
Loyalty programs: vulnerable to loyalty fraud
The nation’s loyalty programs have amassed a whopping $48 billion valuation. For context, that means the total value of all the points and miles currently stored in U.S. loyalty programs is equal to the entire U.S. poultry industry, equivalent to the gross domestic product of Bulgaria and on par with the market cap of Tesla.
And the threat of attack is real. In fact, 72 percent of loyalty program managers say they have experienced an instance of loyalty fraud firsthand. Yet, many U.S.-based loyalty programs have yet to chart a path towards protection for the growing threat of loyalty account fraud.
Pairing the high valuation and comparatively lower security measures, it’s no wonder fraudsters are targeting loyalty programs at a growing rate.
Loyal rewards members expect to be protected.
What makes loyalty programs even more vulnerable is the fact that they often go un-checked. Many program members – 44 percent of them – aren’t active in the loyalty programs in which they are enrolled.
But, members still expect to be protected. Almost all (93 percent) consumers expect their rewards programs to have fraud protections in place. To quantify the losses associated with loyalty fraud, organizations must determine the value those loyal customers bring to their organization.
Calculating the value of loyal customers
Let’s start with a few stats to help make the case for maintaining loyal customers:
- 60-70 percent – the probability of selling to an existing customer
- 5 percent – the probability of selling to a new customer
- 10X – the average value of a loyal customer relative to their first purchase
- 5-20 percent – the average amount loyalty members spend over non-members
Loyal customers are a brand’s most valuable asset. They not only spend more, they also cost less to maintain than acquiring new customers. To ensure your loyal customers stay that way, it’s imperative that brands protect them against the threat of loyalty program fraud.
How would loyal customers react to rewards fraud?
If a breach occurred, more than a quarter (26 percent) say they would cancel their rewards membership. Worse still, one in six members (17 percent) indicate that they would stop doing business with that company altogether after an instance of loyalty fraud.
Bear in mind, however, that’s just a single customer.
There’s an unfortunate ripple effect that occurs after an instance of loyalty program fraud. A recent survey from Connexions Loyalty and Ipsos Public Affairs found that one in three (37 percent) loyalty members whose account was the victim of fraud would tell others about what happened – on average, 24 others, according to American Express. News of a loyalty fraud attack could sway many of those away from doing business with your organization.
In all, the average cost of just one successful fraud attack on a single loyal member can wipe as much as $17,000 off a brand’s bottom line.
So how can loyalty program managers fight back against rewards fraud?
Download our latest loyalty fraud whitepaper for an overview of loyalty fraud in the U.S., which covers:
- The massive short- and long-term financial losses incurred after a breach
- Calculating the lifetime value of your customers and the average cost of a single instance of loyalty program fraud
- Strategies and solutions to combat fraud
- The cost of implementing a fraud detection and prevention solution against the price of doing nothing