Evan Schuman's StorefrontBacktalk

Loyalty programs are intended to be rich sources of customer information for retailers, but they can be worth a lot more than that. Last month, James Stevenson, an IT worker at Sainsbury’s, admitted in a London court that he had rigged a set of loyalty-card accounts, filled them with points that would have required more than $10 million in purchases to acquire, and then actually cashed in about $13,000 in points for groceries from the $30 million chain.

That kind of insider theft would never have gone unnoticed if it involved payment cards. But when retailers think about the security of loyalty-card data at all, they’re usually focused on protecting personal information. Customer loyalty points have such a low value—typically 1 or 2 cents for each dollar spent—that it’s easy to dismiss the risk of counterfeit points. Unless those point totals are treated like cash; in which case, an insider with the right kind of access can generate enough to cost a store real money.

In Stevenson’s case, the programmer/analyst spent six months—from November 2002 to May 2003—creating dummy accounts for the Nectar loyalty program in which Sainsbury’s participates and then stuffing those accounts with a total of 14.6 million points, worth roughly $112,000. Stevenson didn’t start cashing in his points until October 2007. Around the time he had cashed in $13,000 in points, he was caught.

How was he able to do it? That’s not clear from reports published in the U.K. But one possibility is that Stevenson spotted a hole in the operation of the Nectar loyalty system, which is also used by Homebase home-improvement stores, Argos catalog stores, BP gas stations and other retailers, along with online affiliates including Amazon and Expedia. Most retailers’ Nectar points can be used at any participating retailer, and most of those chains check customers’ accounts in real time, with the POS connecting directly to the company that manages Nectar.

But Sainsbury’s only updates Nectar information on a daily basis. That could be why Stevenson was able to rig the dummy accounts with bogus points. Well, that and the fact that the accounts weren’t locked down or audited closely enough, so that Stevenson’s fraud went undetected for years.

Multi-retailer loyalty programs aren’t new. Nectar has been running since 2002, and it’s now the most popular loyalty program in the U.K. The same idea has been trialed in Japan for a mobile-based loyalty plan, and it is being used in Connecticut for restaurant giftcards.

But any time there’s another layer or another player, a loyalty program is harder to manage (and secure) than if it’s under the control of a single retailer. And unless retailers start treating points like giftcards, Stevenson won’t be the last to take advantage of that lax security.