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Tools | by Karon Warren

Keeping It Honest
Switching from paper-based rewards to electronic rewards could help minimize fraud.
Electronic rewards programs for loyal restaurant customers

While paper-based loyalty programs have long been a standard practice at quick-serve restaurants, they also provide ample opportunity for fraudulent activity, much of which is virtually untraceable. After all, with today’s technological advances, it doesn’t take much more than a computer and good design software to duplicate punch cards, stamps, stickers, or other materials commonly used in paper-based programs. Furthermore, paper cards don’t usually have tracking information on them, such as card numbers or user name and phone number.

Therefore, rather than serving as a way to increase repeat business, paper-based rewards more often than not actually take a toll on the company’s bottom line.

“These promotional programs take a generic ‘one-to-many’ approach to marketing,” says Jeffrey Lipp, president and CEO of Chockstone Inc., a marketing technology provider. “While easy to launch, [they] only serve to foster conditions for fraudulent behavior, resulting in the cost of goods sold going down and little to no change in top- line revenue.”

In an effort to combat fraud in rewards programs, many companies are switching to technology-based programs. That certainly was the motivating factor for many Subway franchisees when adopting an Independent Purchasing Cooperative (IPC). “Managing fraud was essential,” says Carman Wenkoff, president of Value Pay Services LLC, an IPC company. “We put in place a number of fraud detection systems.”

Key factors include tracking the number of times a card is swiped within a certain time period, how many card transfers occur for one cardholder, and an excessive number of accrued loyalty points. If one or more of these factors stands out, the account is flagged so it can be investigated.

This type of information gathering and tracking seems to be a common component in many technology-based rewards programs. Stuart Kiefer, vice president of product and business development–loyalty for First Data Corp., a payment solutions provider, says First Data will use industry standards to set a benchmark of activity for a client, consult with the client on a plus/minus factor, and then compile a dashboard of reports that provide a snapshot of activity on the rewards program, including information such as what operator ran the card and on what register.

“It really allows much tighter control on what’s going on,” he says.

If the system is set up to run in real time, action can be taken immediately in response to questionable activity. This may mean freezing a card account, running the card while flagging the account for follow-up, or sending a message to the point-of-sale screen alerting the operator to a potential problem.

As with all things technology, quick-serves may be hesitant to make the move to technology-based rewards because of the cost involved. However, Lipp says it may not be as expensive as one may think. “With the increased investment in advanced point-of-sale devices and broadband (or ip) connections in the industry today, the major hurdles are often already cleared,” he says. “To implement a new program, Chockstone typically loads its software onto an existing POS device and works with an operator to establish the parameters that make sense for that particular program.”

For Wenkoff, the cost of going to such a program was negated by the need to curb fraudulent activity. “It was a big project, but we viewed it as a must-have,” he says. “We couldn’t sustain paper any further because of the lack of control.”

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