Comprehensive data on loyalty program fraud trends, prevention strategies, and the financial impact on DTC brands operating on Shopify
Key Takeaways
- Loyalty fraud has exploded - Between 2018 and 2019, program fraud attacks surged 89%, with a 2020 report showing $3.1 billion in fraudulent redemptions occurring in the U.S., making fraud prevention a critical priority for retention-focused brands
- Most brands remain underprepared - 72% of loyalty program managers report experiencing fraud, yet 42% admit to insufficient fraud prevention capabilities, creating substantial vulnerability across the ecommerce sector
- Inactive accounts create attack surfaces - With 45% of loyalty accounts sitting inactive and 30-50% of points never redeemed, fraudsters target dormant accounts that customers rarely monitor, exploiting the estimated $200 billion in unredeemed points globally
- Brand reputation suffers measurably - 69% of loyalty executives report fraud negatively impacts brand perception, while one in four members would cancel membership if their account were compromised
- Referral fraud prevention delivers ROI - Brands implementing comprehensive referral fraud prevention, like Rivo's 20+ built-in tools, report significant returns—HexClad achieved 92x ROI with 17% higher AOV from referred customers
- Investment in prevention is accelerating - 75% of merchants plan to increase fraud prevention budgets in 2025, recognizing that proactive protection costs far less than reactive damage control
Understanding the Landscape: Key Statistics on Loyalty Program Fraud
1. Loyalty and referral fraud costs businesses approximately $1 billion annually
The financial toll of loyalty program fraud reaches staggering levels, with estimates placing annual losses at $1 billion globally. This figure represents direct revenue loss from fraudulent redemptions, account takeovers, and fake referral schemes that drain program value without generating legitimate customer engagement. The Federal Trade Commission reports that fraud complaints have increased significantly year-over-year, with loyalty program manipulation becoming an increasingly sophisticated attack vector. For Shopify Plus brands running sophisticated loyalty programs, implementing fraud prevention tools from the outset protects both revenue and program integrity. Source: Agilence Loyalty Program Fraud Report
2. According to a 2020 report, $3.1 billion in redeemed loyalty points were fraudulent in the U.S.
A 2020 report from the Loyalty Security Association found that $3.1 billion in loyalty point redemptions were fraudulent in the U.S., representing a substantial drain on program economics. This historical data point underscores why brands need platforms with built-in fraud detection rather than bolt-on solutions added as afterthoughts. While this figure is from 2020, the trend has continued as fraudsters develop more sophisticated techniques to exploit program vulnerabilities. Source: Agilence Loyalty Program Fraud Report
3. Global value of unredeemed loyalty points exceeds $200 billion
The massive pool of unredeemed points—estimated at over $200 billion globally—creates an attractive target for fraudsters. Dormant points in inactive accounts represent low-risk, high-reward opportunities for account takeovers, making real-time monitoring and fraud prevention essential for protecting accumulated customer value. This breakage represents both an economic benefit for brands and a security liability that requires constant vigilance. Source: Currency Alliance
4. Between 2018 and 2019, loyalty program fraud attacks surged 89%
According to Forter's 2019 Fraud Attack Index, fraud attacks on loyalty programs surged 89% between 2018 and 2019. This dramatic increase reflects both the growing value of loyalty currencies and the sophistication of fraud schemes targeting ecommerce programs. While this data is from several years ago, it established the trend that continues today, demanding modern fraud prevention infrastructure built into loyalty platforms rather than legacy approaches that fail to keep pace with evolving threats. Source: Rivo Referral Fraud Detection Statistics
5. Loyalty fraud became the 4th fastest-growing type of fraud in 2024
Among all fraud categories tracked by the 2024 Global eCommerce Payments and Fraud Report, loyalty fraud ranks as the fourth fastest-growing type. This rapid growth outpaces many traditional fraud categories, indicating fraudsters increasingly view loyalty programs as lucrative targets requiring dedicated prevention strategies. The FBI's Internet Crime Complaint Center has noted similar trends in their annual reports, showing increased sophistication in reward program exploitation. Source: Currency Alliance
The Imperative of Fraud Detection Technology in Modern Loyalty
6. The fraud detection and prevention market is projected to reach $43.4 billion in 2025
Market projections show fraud detection technology reaching $43.4 billion in 2025, reflecting the scale of the fraud problem and the industry's response. Ecommerce brands benefit from platforms that incorporate this technology natively rather than requiring separate vendor relationships and integrations. This projected growth demonstrates that businesses recognize fraud prevention as a strategic investment rather than a cost center. Source: Rivo Referral Fraud Detection Statistics
7. Fraud detection market growing at 17.5% CAGR
The fraud detection sector's 17.5% compound annual growth rate demonstrates sustained investment in prevention capabilities. For Shopify Plus brands, selecting loyalty platforms with modern fraud prevention infrastructure positions them ahead of competitors relying on outdated protection methods. This growth rate significantly outpaces overall ecommerce growth, showing that fraud is escalating faster than the industry can organically address it without specialized tools. Source: Rivo Referral Fraud Detection Statistics
8. Average ecommerce business uses 5 fraud detection tools
Ecommerce businesses deploy an average of five fraud detection tools across their operations, creating complexity and potential gaps between systems. Consolidated platforms offering integrated fraud prevention—like Rivo's 20+ built-in referral fraud tools—reduce operational overhead while improving detection coverage. Managing multiple point solutions creates blind spots where sophisticated fraudsters can exploit integration gaps. Source: Rivo Referral Fraud Detection Statistics
9. 75% of merchants plan to increase fraud prevention budgets in 2025
Three-quarters of merchants intend to expand fraud prevention spending in 2025, recognizing that proactive investment costs far less than fraud losses. This budget allocation trend favors platforms delivering comprehensive fraud protection without requiring additional vendor spend. The shift represents organizational recognition that fraud prevention delivers measurable ROI rather than simply representing insurance against potential losses. Source: Rivo Referral Fraud Detection Statistics
Common Types of Fraud in Loyalty Programs
10. 72% of loyalty program managers report experiencing fraud
Nearly three-quarters of loyalty program managers have encountered fraud within their programs, making fraud exposure the norm rather than the exception. This prevalence underscores the importance of selecting loyalty platforms with proven fraud prevention capabilities rather than assuming fraud won't affect your program. The FBI's Internet Crime Report confirms that loyalty and reward program fraud continues to affect businesses of all sizes across all industries. Source: Agilence Loyalty Program Fraud Report
11. 31% of merchants specifically identified loyalty fraud incidents during 2024
Beyond general fraud exposure, 31% of merchants identified specific loyalty fraud incidents in 2024, indicating active, identifiable attacks rather than background losses. Brands using platforms with real-time monitoring and alerting detect incidents faster and minimize damage. The ability to identify and respond to specific incidents rather than only discovering fraud through periodic audits can reduce losses by 60% or more. Source: Rivo Referral Fraud Detection Statistics
12. 25% of ecommerce merchants experienced affiliate fraud attacks in 2024
A quarter of ecommerce merchants faced affiliate fraud—including fake referrals—during 2024. Referral programs without robust verification mechanisms remain vulnerable to self-referral schemes, fake account creation, and coordinated fraud rings that drain program budgets without generating legitimate new customers. Academic research published in the Journal of Business Ethics has documented how referral fraud can undermine the economics of customer acquisition programs. Source: Rivo Referral Fraud Detection Statistics
13. Loyalty fraud constitutes a significant portion of total fraud attempts against online merchants
Loyalty-related fraud represents a substantial portion of all fraud attempts targeting online merchants, demonstrating the outsized role loyalty programs play in fraudsters' strategies. This concentration of attacks demands proportionate investment in loyalty-specific fraud prevention. The National Cyber Security Centre has published guidance recognizing loyalty programs as high-risk attack surfaces requiring dedicated security protocols. Source: Agilence Loyalty Program Fraud Report
14. 75% increase in users manipulating store reward programs for fraudulent gain
Store reward program manipulation has surged significantly, encompassing tactics from return fraud to points abuse and fake account creation. Comprehensive fraud prevention requires addressing multiple attack vectors simultaneously rather than focusing on single fraud types. This trend parallels increases in return fraud and "wardrobing" that retailers have documented through industry loss prevention organizations. Source: Rivo Referral Fraud Detection Statistics
Account Vulnerability and Attack Patterns
15. Accounts holding loyalty points are 4-5x more likely to be attacked
Loyalty accounts face four to five times higher attack rates than standard accounts, with fraudsters specifically targeting accounts containing accumulated points value. This elevated risk profile makes multi-factor authentication and suspicious activity monitoring essential for loyalty program security. Cybersecurity researchers have documented that credential stuffing attacks disproportionately target accounts known to contain stored value like loyalty points or gift card balances. Source: Transmit Security Hospitality Fraud Report
16. 45% of loyalty program accounts are inactive or infrequently used
Nearly half of loyalty accounts sit dormant, creating ideal conditions for account takeovers that go unnoticed by legitimate owners. Inactive accounts with accumulated points represent the highest-risk segment, requiring automated monitoring and verification systems to detect unauthorized access. When customers don't regularly check their accounts, fraudulent activity can continue undetected for months before discovery. Source: Transmit Security Hospitality Fraud Report
17. 30-50% of loyalty points are never redeemed
Between 30% and 50% of earned loyalty points remain unredeemed, creating substantial pools of value vulnerable to theft. While breakage benefits program economics, unmonitored unredeemed points also represent unprotected assets that fraudsters target. This paradox means brands must balance the financial benefits of breakage against the security costs of protecting dormant value. Source: Currency Alliance
The Impact of Fraud on Customer Loyalty and Brand Reputation
18. 69% of loyalty executives report fraud negatively impacts brand perception
More than two-thirds of loyalty executives recognize fraud's corrosive effect on brand perception, extending damage beyond direct financial losses. Customers who experience fraud—or hear about it—question program security and brand trustworthiness, undermining retention goals. Consumer protection research shows that security breaches can permanently damage customer relationships even when victims are made financially whole. Source: Rivo Referral Fraud Detection Statistics
19. One in four loyalty program members would cancel membership if their account were compromised
A quarter of loyalty members would terminate their membership following account compromise, translating fraud incidents into direct customer churn. For brands investing in customer retention, protecting accounts becomes essential for preserving the customer relationships loyalty programs aim to strengthen. This threat of membership cancellation compounds the direct financial loss from fraud with long-term customer lifetime value destruction. Source: Agilence Loyalty Program Fraud Report
20. 64% of merchants report fraud-related friction reduces conversion rates
Fraud prevention measures that create excessive customer friction reduce conversion rates for 64% of merchants, creating tension between security and experience. Modern fraud prevention uses behavioral analytics and backend verification to maintain security without degrading legitimate customer experiences. Brands using Rivo benefit from fraud prevention that operates invisibly to legitimate customers while blocking fraudulent activity. Source: Rivo Referral Fraud Detection Statistics
21. 80% of consumers say loyalty programs make them more likely to continue doing business with brands
Loyalty programs drive repeat business for 80% of participating consumers, making program integrity essential for retention. Fraud that compromises program trust undermines the retention benefits that justify loyalty program investment. When customers lose faith in a program's security or fairness, the entire retention strategy collapses regardless of reward generosity. Source: Agilence Loyalty Program Fraud Report
Building a Fraud-Resilient Referral Marketing Strategy
22. Referred customers generate 16% higher lifetime value than those from other channels
Referral-acquired customers deliver 16% higher lifetime value, making referral programs valuable acquisition channels worth protecting. Fraud prevention ensures referral spend generates legitimate high-value customers rather than fake accounts that drain budgets without contributing revenue. This CLV premium makes referral program integrity even more critical than other acquisition channels. Source: Rivo Referral Fraud Detection Statistics
23. Brands implementing comprehensive referral fraud prevention report 92x ROI
HexClad achieved 92x ROI on their referral program while generating $450K in the first 90 days, demonstrating returns possible when fraud prevention protects program economics. Rivo's 20+ built-in fraud prevention tools—including IP monitoring, self-referral blocking, and order fulfillment verification—enabled this performance. Without robust fraud prevention, referral programs often experience negative ROI as fraud costs exceed legitimate acquisition value. Source: Rivo Referral Fraud Detection Statistics
24. Referred customers show 17% higher AOV compared to non-referred customers
Beyond lifetime value, referred customers produce 17% higher average order values, compounding the value of legitimate referrals. Fraud prevention ensures AOV metrics reflect genuine customer behavior rather than fraudulent transactions that distort program analytics. This AOV premium means each fraudulent referral not only costs the reward payout but also represents lost opportunity for a high-value customer acquisition. Source: Rivo Referral Fraud Detection Statistics
Prevention Gaps and Organizational Challenges
25. 42% of retailers admit to insufficient fraud prevention capabilities for loyalty programs
More than four in ten retailers acknowledge inadequate fraud prevention for their loyalty programs, creating known vulnerability that fraudsters exploit. This gap represents both risk and opportunity—brands addressing prevention gaps gain competitive advantage while reducing losses. The honest assessment of capabilities demonstrates growing awareness, but the implementation gap remains dangerously wide. Source: Agilence Loyalty Program Fraud Report
26. 50% mention loyalty fraud as a low organizational priority
Half of organizations deprioritize loyalty fraud relative to other concerns, despite the documented costs and growth rates. This organizational blind spot allows fraud to accumulate until losses become impossible to ignore, making proactive prevention essential for forward-thinking brands. The mismatch between fraud impact and organizational priority represents one of the biggest vulnerabilities in modern ecommerce retention strategy. Source: Agilence Loyalty Program Fraud Report
27. Organizations lack unified fraud detection across channels
Many ecommerce brands struggle with fragmented fraud detection that doesn't communicate across loyalty, referral, and transaction systems. This siloed approach creates blind spots where sophisticated fraud schemes exploit gaps between systems. Rivo addresses this by providing unified fraud detection across loyalty earning, referral attribution, and reward redemption in a single integrated platform. Source: Rivo Referral Fraud Detection Statistics
Rivo's Approach to Fraud Prevention
For Shopify Plus brands seeking comprehensive fraud protection, Rivo provides 20+ built-in fraud prevention tools addressing the full spectrum of loyalty and referral fraud. Rivo Referrals includes IP address monitoring (one referral per household), self-referral blocking, cookie tracking, new customer verification, minimum cart requirements, and order fulfillment verification before reward distribution.
This integrated approach eliminates the need for multiple fraud detection vendors while providing protection that scales with program growth. With 99.98% API uptime and 2.9 billion API calls processed annually, Rivo's infrastructure supports enterprise-scale fraud prevention without sacrificing performance.
Brands like HexClad, Kitsch, and Dr. Squatch trust Rivo's fraud prevention capabilities to protect their retention programs, contributing to the $1.5 billion in revenue Rivo has generated for client brands.
Frequently Asked Questions
What are the most common types of fraud in customer loyalty programs?
The most prevalent loyalty fraud types include account takeovers targeting accounts with accumulated points, fake referrals exploiting referral program rewards, self-referral schemes, points abuse through return fraud, and bot activity creating fake accounts. Accounts holding loyalty points face 4-5x higher attack rates than standard accounts, with 45% of inactive accounts creating ideal targets for undetected compromise.
How does technology improve fraud detection in loyalty programs?
Modern fraud detection combines IP address monitoring, behavioral analytics, cookie tracking, and real-time verification to identify suspicious activity. Platforms like Rivo process billions of API calls annually while maintaining sub-100ms response times, enabling real-time fraud detection without degrading customer experience. The fraud detection market's 17.5% growth rate reflects ongoing investment in these capabilities that help brands stay ahead of increasingly sophisticated fraud tactics.
What steps can brands take to prevent referral program fraud?
Effective referral fraud prevention requires multiple verification layers: IP monitoring to prevent household manipulation, self-referral blocking, new customer verification confirming legitimate new accounts, minimum cart requirements preventing low-value fake orders, and order fulfillment verification before distributing rewards. Rivo's 20+ built-in fraud prevention tools address these vectors by default, which is why brands like HexClad achieved 92x ROI with comprehensive fraud protection in place.
Can loyalty program fraud impact a brand's reputation?
Fraud significantly damages brand reputation—69% of loyalty executives report negative brand perception impacts from fraud incidents. One in four loyalty members would cancel membership if their account were compromised, translating fraud exposure directly into customer churn. Protecting program integrity protects the customer relationships loyalty programs aim to build, making fraud prevention a customer retention strategy rather than just a loss prevention tactic.
What specific fraud prevention tools does Rivo offer for loyalty and referral programs?
Rivo Referrals includes IP address monitoring limiting referrals per household, self-referral blocking, cookie tracking for device identification, new customer verification, minimum cart requirements, and order fulfillment verification before reward distribution. These 20+ built-in tools address common fraud vectors without requiring additional vendor integrations or manual monitoring, providing enterprise-grade protection that scales automatically as your program grows.
