At first glance, it’s an innocent gesture – a gift card, a customer smile, a loyalty bonus. But behind the scenes of this marketing courtesy may be a costly loophole. In the UK, stores are increasingly abandoning gift cards not through lack of interest, but through… employees who have found ways to turn trust into personal profit. Fraud in loyalty programs is not a marginal problem, but a real threat to the reputation and financial performance of companies. Does this mean the end of loyalty as a sales tool? On the contrary. The key is prevention – smart, systemic, and nimble like the fraudsters themselves.
A wave of fraud in loyalty programs
Loyalty programs and gift cards are an integral part of marketing strategy today. They are meant to attract customers, build a relationship, and boost sales. Unfortunately, every year, there is also a growing shadow that falls over these tools – a wave of fraud and abuse that can ruin even the most elaborate systems.
In recent months, UK retailers have uncovered a serious problem of gift card fraud – and it wasn’t hackers or external fraudsters, but… their own employees. Falsely activating cards, directing refunds to private accounts, artificially earning loyalty points, or swapping customers’ card numbers were just some of the mechanisms used to defraud. The procedure often went on for months, disguised under the guise of correct transactions. The consequences? Millions of dollars in losses and loss of trust. These events made it brutally clear to the industry that loyalty – including internal loyalty – needs tough, technological controls.
– The biggest challenge is that the perpetrators of fraud are often not anonymous customers, but people who have access to the system – store employees or service points. This makes traditional protection methods insufficient, notes Filip Zajdel, Head of Customer Success at Sparta Loyalty.
Similar incidents have prompted some retail chains to reduce or completely withdraw gift cards from their offerings, as they feared further losses and reputational damage. This is a wake-up call for the entire industry – if proper safeguards are not in place, the problem could get worse.
Where does fraud lurk?
Seemingly, gift cards or loyalty points are simple tools. In reality, however, there may be pitfalls lurking beneath them. Employees with the authority to manage cards and points are able to manipulate the system, topping up their accounts, generating fraudulent transactions, and even manipulating merchandise returns to “extract” extra profits.
– In one situation analyzed, an employee tried to circumvent the system by activating a large number of low-value gift cards, which were then totaled and used for fictitious purchases. These transactions generated loyalty points, which were ultimately to be exchanged for rewards – already as ‘legitimate’ funds. Thanks to the use of sensors in our system, which monitor both the number of card activations in a certain period of time and the ratio of the value of the transaction to the awarded points, we manage to quickly catch the non-standard pattern of behavior and block further operations, emphasizes an expert from Sparta Loyalty.
Fraud in loyalty programs is not a marginal problem – it is a growing trend that can threaten the entire retail industry. This phenomenon is not limited to individual cases – it is gaining a global scale and requires a multidimensional approach. What tools will help us fight “benefit thieves”?
Intelligent systems to fight fraud
Modern anti-fraud systems increasingly use advanced monitoring tools that act as intelligent “sensors” – sensitive to the slightest anomalies. Instead of reacting only after the fact, such systems analyze behavioral patterns, compare data, and catch suspicious activity in real time.
For example, sensors can detect situations where an abnormally large number of transactions appear on a single loyalty card wallet in a short period of time, which is beyond normal customer behavior. Or pay attention to transactions with an abnormal ratio of value to points awarded, or suddenly appearing excessive returns.
– The problem of fraud in gift cards is so serious that some stores are deciding to withdraw them from their offerings altogether. In the Sparta Loyalty system, we have introduced an advanced anti-fraud module, which, thanks to intelligent sensors, monitors every transaction, detects abnormal patterns, and immediately notifies of suspicious activity. This allows us not only to react quickly to fraud, but above all to prevent it effectively, thus protecting the integrity of loyalty programs, explains Filip Zajdel.
Multi-layered security – from cards to management
Monitoring alone is one thing, but true security requires a multi-layered approach. Among best practices is the use of several unique identifiers for each card: a barcode, a visible number, and a PIN known only to the owner. This makes it significantly more difficult for fraudsters to exploit stolen data. In addition, control of the card activation and management process is in the hands of a limited number of people who use dedicated administrative panels. As a result, every change, recharge, or deactivation of a card is subject to strict supervision.
– There’s a reason we talk about systems with multi-level authorization – it’s the basis of security in modern loyalty programs. At Sparta Loyalty, we implement multi-level solutions that provide real protection and ensure that the system is not easily broken, comments Filip Zajdel.
Another interesting security feature is the special packaging of the cards – for example, placing them in envelopes that conceal most of the data except the barcode. The PIN remains hidden until the customer opens it. This makes it impossible, for example, for a third party to take a photo and use the card later.
Why does the investment in security pay off?
Implementing advanced security mechanisms in loyalty programs may seem expensive at first glance – after all, it requires not only the right software but also analytics, specialized knowledge, and systematic monitoring. However, on a closer look, it turns out that it is the lack of these measures that generates the greatest losses. Fraud that goes undetected can damage the entire foundation on which customer loyalty is based.
It’s not just about money anymore. We are increasingly aware and demanding – we expect not only benefits, but also security. Any anomaly, suspicious transaction, or unauthorized return can set off an avalanche of distrust. And as we know, trust once lost – especially in the era of social media and instant information sharing – is extremely difficult to rebuild. All it takes is one incident that gets through to the public for customers to start dropping out. And business partners and distributors can follow suit.
– Companies are increasingly aware that if they don’t invest in security, they could lose more than just data – they could lose their reputation. That’s why more and more of them are treating security not as a cost, but as an investment. An investment in customer relations, in operational stability, and long-term brand development. Especially since giving up proven loyalty tools that are familiar to consumers and effective does not pay off at all. In the end, lack of loyalty is much more costly, Filip Zajdel concludes.
Loyalty programs today are much more than points for purchases. They are powerful platforms that generate huge amounts of data and build long-term relationships with customers. And where there is value, there is also moral hazard. But this is where competitive advantage is born: where others see a problem, market leaders are implementing systems that not only detect, but prevent in the first place. Security becomes an integral part of the offering, not just an operational backdrop. A well-thought-out, fraud-proof loyalty program is not just peace of mind for the operator – it also sends a clear signal to customers: “Your trust is worth protecting for us.”
