By Len Lubbe, CEO at LoyaltyPlus

Even though loyalty programmes have become increasingly popular, research shows that loyalty fraud now accounts for 31% of all fraud attempts against online merchants globally. Given how companies collect and store vast amounts of customer data, fraud is likely to become even more significant in the coming years. Safeguarding privacy and ensuring data security have therefore become non-negotiable to maintain trust and compliance with regulations.

One of the most essential aspects of handling customer data responsibly within loyalty programmes is implementing strong data encryption. Loyalty programmes should employ end-to-end encryption to safeguard data in transit and at rest. Using secure encryption protocols, such as AES-256, ensures that customer details, transaction histories, and preferences remain protected from unauthorised access.

Regulatory compliance is also something no company can ignore, especially when it comes to handling customer data. The General Data Protection Regulation (GDPR) in Europe and South Africa’s Protection of Personal Information Act (POPIA) outline strict requirements for data collection, storage, and usage. Loyalty programmes must ensure that customers provide explicit consent before their data is collected, that data is stored securely and only used for its intended purpose, and that customers have the right to access, modify, or delete their data upon request.

A privacy-centric approach reassures customers that their data is handled with care. This includes a data minimisation approach. Such an approach entails collecting only the necessary data required to operate the loyalty programme effectively. Anonymisation and pseudonymisation techniques help to mask personally identifiable information (PII), reducing risks in the event of a data breach. Encouraging customers to voluntarily share information through surveys and preference settings rather than tracking behavioural data without consent fosters trust and transparency.

Data understanding

Customers are more likely to engage with a loyalty programme if they understand how their data is being used and protected. Transparency builds trust and can be achieved through clear and accessible privacy policies that outline data usage and protection measures.

As part of this, frequent updates on security enhancements help reassure customers about the company’s commitment to safeguarding their information. Providing customers with control over their data, such as the ability to opt out of data sharing or select what information they are comfortable sharing, further strengthens confidence in the programme.

Many loyalty programmes integrate with third-party vendors for data analytics, payment processing, and marketing automation. It is therefore crucial to vet these partners to ensure they adhere to the same high-security standards. Businesses should conduct regular security audits of third-party vendors, implement stringent data-sharing agreements, and monitor for compliance breaches while taking corrective action when necessary.

Strengthening security

Fraudulent activities such as account takeovers and fake reward redemptions can damage the integrity of a loyalty programme. Companies should implement multi-factor authentication (MFA) to verify user identities, use AI-powered fraud detection systems that identify unusual patterns in user behaviour, and provide regular security training for employees to prevent social engineering attacks.

As data privacy regulations evolve, companies must stay ahead by continuously improving their security frameworks. At LoyaltyPlus, we remain committed to helping businesses design and manage loyalty programs that prioritise customer trust.

By adopting best practices in data security and compliance, local companies can protect their customers while delivering exceptional loyalty experiences. Ensuring privacy and transparency comes down to fostering long-term relationships with customers built on trust and accountability.