Four Degrees of Loyalty Fraud

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By: Wise Marketer Staff |

Posted on June 23, 2021

Have you ever heard of the theory of Six Degrees of Separation (or the pop culture version of Six Degrees of Kevin Bacon)? This theory suggests that no matter how disconnected two strangers seem to be from each other, all of us can be linked to one another within a maximum of six social relationships.

By: Lincoln Smith

This idea of a shrinking world isn’t new, and while it may be comforting to consider that the world is growing more connected, the truth is that as the web of these connections expands, our knowledge of and trust in each extending layer subsequently diminishes. Unfortunately, this often makes crimes like loyalty program fraud easier to commit, because as our participants find themselves farther and farther away from the sponsoring company, the psychological burden that accompanies potentially fraudulent behavior also decreases. In other words, the greater the distance — either physical or psychological — between you and your participants, the less influence and control you tend to have over them and their actions.

This means that when it comes to fraud, the worst-case scenario for a B2B loyalty program is one in which the participants are as far removed as possible from you. Generally, this separation occurs at four distinct layers:

1) A global program,

2) with open enrollment,

3) that rewards non-employees,

4) for non-sales activities

So, to better understand how each of these layers creates its own set of vulnerabilities for a B2B loyalty program — and how we as program planners might go about minimizing them — let’s go ahead and take a look at each one individually.

A Global Program

A loyalty program with a global reach offers a number of exciting benefits, including access to rapidly developing economies that are scaling quickly and which feature a wide and often untapped participant base. However, because these participants will often be scattered across dozens of countries on multiple continents, this physical distance, regardless of the connectivity of the digital world, can create a very real dynamic of separation between them and the sponsoring company. In these types of loyalty programs, the authority of the program administrators often becomes more abstract; local regulators may not bear as much weight when it comes to fraudulent behavior, particularly if the country or region has a negative view of multinational corporate hegemony.

In addition, cultural differences may allow for a misalignment of rules and laws. Whether as the result of subtle language distinctions, or perhaps due to more direct differences in how fraudulent behavior is culturally viewed, rules and guidelines in a global program may be violated without the violators clearly recognizing that what they’re doing is wrong. Take the world of education, for example: in some cultures, giving a friend an answer to a test question might be seen as sharing rather than cheating, while copying someone’s words could be viewed as a sign of respect rather than intellectual theft. With such differences in cultural norms, it’s easy to see how behavior that might be considered clearly unlawful in one area of the world might not be so black-and-white in another. Ultimately, this creates an additional layer of separation that can make fraudulent behavior feel less real or serious.

Open Enrollment

In a closed-enrollment program, access is typically restricted to those who have been explicitly invited. An open enrollment program, on the other hand means that anyone who has the URL or domain name can access it. Usually this type of rules structure has looser criteria for participating — perhaps just a name and a Gmail account for an initial login. Part of the reason for this is to encourage greater participation; with fewer “gates” and less onerous restrictions for enrollment, you can increase the eligible pool of potential participants and generate more widespread engagement for your program. Furthermore, if your participants don’t have, say, a company-sponsored email address, an open-enrollment structure might be the only way these individuals can participate.

The obvious drawback to this is that with fewer controls in place, the system becomes easier to “game.” Participants can create multiple email accounts and attempt to enroll in the program multiple times, or the program could potentially be accessed by those who have no affiliation with the sponsoring organization. This type of loyalty program can also be more challenging to monitor, as administrators and their tech have fewer criteria on which to build their “gates.”

Rewarding Non-Employees

Employee-facing programs are naturally easier to monitor and police. You know exactly who is and who should be participating, and these participants have a direct connection to the sponsoring organization. On the other hand, a program that rewards non-employees, such as third-party channel partners in a global reseller network, are much more removed, and thus may be more liable to ignore program rules and regulations. The difficult irony here is that while these non-employees may feel the least sense of inherent loyalty to your organization, they might also be the ones whose loyalty is the most valuable to cultivate.

Rewarding Non-Sales Activities

When we talk about non-sales activities, we’re referring to activity-based incentives that are designed to drive specific behaviors. Examples would be referral bonuses, eLearning activities, or anything related to quizzes or training. In general, these types of activities can be a great way to keep a large reseller network engaged with your organization and up-to-date with your latest products and services. They can serve as a useful way to increase mindshare in an environment where cost may typically be the most important “X factor.”

However, these types of loose engagement tactics can be somewhat easy to “game” if not closely monitored. For example, without the proper checks in place, a person might “refer” themselves using an alternate email address, or complete a learning module twice with two separate accounts. Unlike more traditional sales activities, where the proof of the behavior can be found in actual dollars and cents, non-sales activities can create opportunities for would-be fraudsters because the criteria isn’t necessarily tied to a tangible, sales-based outcome.


While all of the above might seem like a good reason to limit or even forego your next B2B loyalty opportunity, I do believe there are certain steps you can take to mitigate the potential risk of fraud. For starters, your program needs a strong and consistent validation methodology that can verify whether the people who are participating really are who they say they are. This could include stricter eligibility requirements, email domain filtering or address verification upon sign-up, or “pending” statuses for new enrollees that requires the review and approval of a program administrator.

In addition, as B2B loyalty programs continue to spread out across the globe, having a good working relationship with your partners becomes even more important as communication is essential to preventing fraud. Reviewing the terms and conditions of your program, both internally and amongst your partner network, can help solidify a consistency of expectations when it comes to how the program will be managed and regulated. It can also help you establish a clear and standardized workflow for program monitoring.

Finally, generating propensity reports based on expected behaviors can enable your program administrators to quickly flag any participant activity that falls outside the norm. Having a system that accomplishes this is a great first step, and these reports can reinforce or further filter the flagging criteria of your tech.


Whether we want to admit it or not, the hard truth is that there are “bad actors” out there who will exploit any opportunity to get something for free. Even with strong program security protocols, it’s probably not possible to guarantee 100% protection from those who would participate in our programs with ill-intentions. Such an endeavor would likely be too expensive and time-intensive to make it worthwhile. Nonetheless, simply throwing up our hands in frustration and restricting our global loyalty strategy could end up causing us to leave tremendous value on the table.

In the end, if you’ve set up a B2B loyalty program for your network of independent contractors, what you’ll want to consider is whether you’re likely to lose more money due to fraud, or to an overly cumbersome onboarding process that restricts or demotivates a large swath of potential (and legitimate) participants.

Fortunately, I believe there can be a happy medium, one that focuses not on a total program lockdown, but on seeking out and eliminating any loopholes at each of these layers of separation. By evaluating each layer for potential risks and weaknesses, and by understanding your organization’s overall risk tolerance, you and your partners can begin to set up the right kinds of controls that will help you ultimately preserve your program’s value and integrity for the long run.

Lincoln Smith is the CSO at HMI Performance Incentives and has over 20 years of experience helping manufacturers, distributors, and service companies design award winning performance incentive strategies that motivate sales organizations and channels to accelerate growth and enhance customer engagement.