Apr 21, 2023

Preventing Referral Fraud: Strategies to Protect Your Loyalty Program & Brand Reputation

Ellie Bradford
April 21, 2023

Referrals quickly grow customer-base but fraud risks reputation, revenue & trust. Here's how to protect your loyalty program from fraud.


Loyalty programs are a popular marketing tool for businesses to incentivize customer loyalty and drive sales. As a result, one of the most effective ways to quickly grow a loyal customer-base is through referrals. Referrals allow your brand to offer incentives through rewards to members mentioning your brand to friends or family.

However, this word-of-mouth marketing tactic can also hold risks for your brand getting targeted by not-so-sincere customers who want to exploit the rewards associated with the referral program. Unfortunately, referral fraud can seriously harm a business's reputation and bottom line.

Yet, it should be noted that it is only a very small percentage of people who will have to deal with the unfortunate reality of referral fraud so it is not something that should be of deep concern. We just want to provide your brand with as much information as possible to help combat if this should happen. There are ways to prevent the misuse of your referral program, outlined in more detail within this article. We want to help you keep your loyalty program running smoothly without falling victim to fraudsters. 

Common Types of Referral Fraud & How it Impacts Business

Referral fraud can have a significant negative impact on loyalty programs and the business as a whole. 

Here are some of the most common types of referral fraud:

1. Fake Referrals: This occurs when individuals create fake accounts or refer fake individuals to the program to earn rewards.
2. Self-Referrals: This occurs when individuals create multiple accounts and refer themselves to the program to earn multiple rewards.

Here are some of how referral fraud can negatively affect a business:

1. Loss of revenue: When individuals fraudulently claim rewards, it causes the program to pay out more than intended. 
2. Damage to the brand's reputation & customer trust: Customers may view the program as unfair or dishonest if others are collecting more rewards than deserved. So they may be less likely to participate in future promotions or recommend the business to others.
3. Time-consuming: Manually managing and investigating loyalty accounts for potential fraudulent activity will mean businesses have to invest a proportion of their valuable time into this.

Protecting Your Loyalty Program: Effective Strategies to Prevent Referral Fraud

The main way to combat referral fraud is through focusing on preventative strategies versus a cure. There are some useful tips and tricks we have under our sleeve to help businesses mitigate the risk of exploitation. 

can be used as an auditing tool to help confirm that referred accounts are real customers. You can ask new referrals to provide contact info or other verification. Our team is working hard to expand our features, including the verification process, which is in our product roadmap.

Reasonable Rewards
are crucial. Ensure your rewards offering rewards aren’t too generous. We also recommend using points instead of monetary incentives to be more effective in encouraging participation and reducing fraud.

Monitoring Referral Behavior
allows your brand to identify suspicious activity. Therefore, we recommend setting out some time to monitor loyalty accounts that are making referrals to ensure you can prevent any fraudulent behaviour. 

Offering rewards after verification
. To ensure the referral process gets completed, one can delay the gratification of providing a reward to the referrer until the referred customer has taken a specific action, such as making a purchase or signing up for a service. Just a reminder, we are currently in the process of developing our verification system.

Importance of communication
with your customers about the referral program's terms and conditions, the rewards they can earn, and the consequences of fraudulent activity should always be emphasized.

To conclude, referral fraud is a threat to loyalty programs and can negatively impact a business's reputation and revenue. It is important to note that it is unlikely that customers will attempt referral fraud but it still is crucial to take preventative measures to combat referral fraud and focus on implementing strategies that prevent fraud before it occurs.

However, it is important to remember that these precautionary measures are in place as implementing a referrals scheme within your loyalty program is one of the most effective and popular ways of encouraging authentic word-of-mouth referrals. 

By verifying new referrals, monitoring referral behavior, offering rewards after verification, and emphasizing clear communication with customers about the referral program's terms and conditions, businesses can protect their loyalty programs from fraudsters. 

Executing these preventative strategies, you can protect your business while cultivating trust and confidence in your customers towards your loyalty program. Not to mention, building a trusted brand can lead to a valued relationship with customers to drive sales. Build your trusted brand with today, sign up now for a risk-free trial!