Ai Editorial: Two issues associated with loyalty fraud – detection and prosecution

First published on 29th September, 2016

Loyalty fraud is a malice that continues to spread. It is up to loyalty practitioners to educate the senior management, including CFO and CEO, on the seriousness of loyalty fraud, writes Ai’s Ritesh Gupta


Are you thinking like a fraudster? Are you contemplating how your rewards program or FFP can be exploited by a criminal?

It’s time to take action. It’s time to be in control.

Fraud is happening, and it’s growing.

The onus is on businesses to respond, simply because consumers aren’t changing their behavior and as a result they are more vulnerable to fraud. In one of its recent surveys, ACI indicated that consumers are not really protecting themselves enough. For instance, they “leave phones (with ever increasingly available mobile wallets) unlocked and perform sensitive transactions on public computers”.  And to make it worse, if the perception is weak, or there is not adequate customer support as a result of a fraud incident, then the customer moves on.   

As highlighted in one of our recent articles, the fact that airlines present more earning and redemption options today, mainly via partnerships and rewards ecosystems, this also means that the overall loyalty earning and burning lifecycle has paved way for new means of fraud. We referred to following initiatives to keep a tab on loyalty fraud – monitor activity, keep data/ information secure, stringent verification, being savvy with data, customer experience shouldn’t be jeopardized and creating awareness among consumers.

But, as I interacted with experienced airline industry and loyalty consultant, Iain Webster, it became clear that there are other areas, too, that need to be focused upon. Webster, currently associated with ICLP, a part of the Collinson Group, in London as senior loyalty consultant, asserted that fraud is growing. “The fraudsters are getting more serious as they realise the gains to be had. Loyalty practitioners need to get serious too,” suggested Webster.

Aligning things internally for fruitful results

Importantly, the industry also needs to align itself internally in order to have a bigger control over the malice of loyalty fraud.

Webster said it boils down to too few airlines recognising that loyalty is big business.

“A successful FFP can easily bring in more revenue than a Cargo division, for example. It is up to loyalty practitioners to educate their CFO and CEO on the seriousness of loyalty fraud,” he said.

He said there are 2 main issues when it comes to combating loyalty fraud today.

                1.     Detection: Most loyalty programs sit within marketing departments and therefore have neither the skills nor the inclination to spend time and resource digging around looking for an unseen problem. Detecting fraud requires a mix of data, financial and technical knowledge, said Webster.

2.     Prosecution: “I deliberately use the word ‘prosecution’ because that is the logical consequence of theft. Loyalty fraud is theft. Period. But it is not easy to persuade top management or the authorities that something of value has been stolen. Therefore in instances where fraud is uncovered the usual response is to do little more than close the account and blacklist the email address of the fraudster who is then free to move on and do it again somewhere else under an alias,” explained Webster.

So airlines need to dig deeper, and need to have resources and processes in place.

·          Define roles and set up a process – The fraud/ security team needs to be established with clear definition of roles. Also, airlines need to establish business policies and operational practices in addition to implementing fraud detection and prevention tools. Is there a process in place to assess multiple data points in order to detect modus operandi? How to work out manual and automated tools to keep a tab on fraud related to loyalty? Who is going to decide on performance metrics and related accountability?  

·          Areas of improvement - Loyalty program fraud largely tends to revolve around purchase of points or miles via fraudulent or stolen credit cards, and taking over of loyalty accounts by a cheat/ imposter, who generally redeems the points or miles. Where do you think airlines can improve at this juncture? “Firstly, if they are not already doing it, airlines should apply the same rigor to detecting credit card fraud with point purchase as they do with revenue ticket purchase. Then I believe the issue is not so much ‘taking over’ of loyalty accounts, but one of identity theft where an account is set up by the fraudster using a stolen identity,” said Webster. “Anecdotally I can well remember ringing up the genuine individual who was the named person on an account we had under investigation only to spend the first ten minutes trying to explain to him what a frequent flyer program was. He had no idea that the fraudster, his travel agent, was operating the account and then selling on the redemption tickets.”


·          Understand new developments – A lot is being talked about real-time, behavioral analytics-based fraud detection and prevention. “I would like to see greater use of technology and data mining to detect suspect behaviour patterns in much the same way as the insurance claims industry has been doing for years,” suggested Webster. Specialists highlight that behavioral analytics can be banked upon to  discover and probe changes in user behavior with precision. So one can come to grips with complex fraud patterns with high accuracy based on dynamic user behavior modeling.

Loyalty Fraud Association

A new association, Loyalty Fraud Prevention Association, has been set up to fight loyalty fraud.

“By bringing together loyalty managers from different industries, travel, financial, and retail we will create an environment of shared knowledge of the techniques being used by the bad guys and the counter-measures that others have found successful. This way we can alert our members as to existing and potential scams. The loyalty version of Interpol.  Maybe ‘Interpoints’ ?” said Webster, president, Loyalty Fraud Prevention Association.


A two-day event, Annual General Meeting - Loyalty Fraud Prevention Association (LFPA), is scheduled to take place in London (Nov 9-10) this year. The agenda: Is your loyalty program protected?

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