Mitigating Fraud Risk Concerns: A Video Interview with Don Hughes

Jun 18, 2013

In our age of lightning-fast business transactions conducted across a wide swath of marketing channels, no vertical is immune to the issue of fraud.

Take retail, for example. Retailers in 2012 paid an average of $2.70 for every dollar lost to fraud, up 20% from 2011 (LexisNexis). $2.70 may not sound like much, but multiply that by millions of cases of fraud every year, and it’s clear this is a significant problem.

The problem of fraud also extends into these businesses’ loyalty programs, as Don Hughes, Kobie’s Chief Information Officer, told Roger Williams of LoadFactor in a recent video interview discussing how loyalty program managers can mitigate fraud risk concern.

Today, loyalty programs must strike a delicate balance: offering an easy-to-use program that is engaging and fun, while still taking measures – such as requiring extra identification or analyzing data that links individual customers to each redemption – to protect it from fraud.

Don talked about two Kobie clients, AMC Theaters and BJ’s Restaurant and Brewhouse, as examples of businesses that are fighting fraud by focusing their prevention efforts where they can do the most good: during the burn side of the earn and burn equation, where extra verification of ID and payment methods can be implemented.

Some of Don’s salient points include:

  • Loyalty program transactions are as vulnerable to fraud as regular credit card transactions are, so companies need to incorporate well-thought-out fraud prevention measures into programs’ original design.
  • During tough economic times such as today, fraud of all kinds increases as consumers are squeezed by financial pressure. Customer rewards programs can help mitigate this problem by focusing their fraud prevention efforts heavily on the redemption side of the “earn and burn” cycle. They can achieve this by taking steps to tie credit card authentication to the ID of a rewards redeemer.
  • During times that drive higher levels of fraud, merchants who offer the goods and services we all need most – food, clothing, household goods, gasoline – are the most vulnerable to fraud, because people need these no matter what.

As technology helps the business world conduct transactions with ever-increasing speed and in massive volumes, it’s imperative that loyalty program managers put in the time and resources to pinpoint the fraud-prevention measures that make the most sense for them – and their customers.

What steps is your program taking to mitigate fraud today? You can watch Don’s interview and share your thoughts with the Kobie community in the section below.