Point programs an insecure market

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Point programs an insecure market

Kim Cheol-ho, an information technology company owner, read an unsettling post late last October on one of the Internet community sites he frequented.

The post claimed that Thiat, one of the country’s largest online point-exchange service sites, had been hacked, with some members’ accounts completely emptied. Kim hastily logged onto the site to check his account, but sure enough, his unease quickly turned to despair. Three transactions were made on his account around noon on Oct. 13. His accumulated points had been exchanged for gift certificates totaling 3.25 million won ($3,089). While not completely empty, he had nearly no points left.

Although the site requires an extra step of authentication - members must use a mobile phone to log into an account holding more than 500,000 won - it hadn’t been enough to prevent hacking. The 33-year-old businessman contacted the authentication company and his mobile phone service provider; both confirmed that he hadn’t used the service.

Kim contacted Thiat next and alerted them of the incident, but the company said it could only reimburse 50 percent of his losses; additional compensation could be determined after an investigation was completed, he was told. So ultimately, after consulting his lawyer, Kim decided to take the case to a civil court to claim his losses.

“Although the cost of the lawsuit is more expensive than the worth of the points I will get back, I want to hold the company responsible until the end,” he said.

With more members than ever before, the point-exchange market has drastically expanded in recent years, and industry insiders estimate that the market is currently worth approximately 100 billion won.

These days, experts say, with the growth of related markets, membership points and miles have virtually become a form of currency.

“With the recent economic slowdown, more and more people are using exchange services to piece together their scattered membership points for better use,” an industry insider said.

Under the Specialized Credit Financial Business Act, the Financial Supervisory Service only oversees points issued by credit card companies; however, no government supervision exists for other types of points.

And because the government continues to consider it a secondary service, companies are not required to follow specific guidelines; so many consumers like Kim are left with little legal recourse when their accounts are hacked or compromised.

“The membership points are being used like cash through these exchange sites, but we have treated them as some kind of extra benefit,” said an official from the Korea Financial Telecommunications and Clearings Institute. “If points and mileage are recognized as a prepaid electronic currency under the Electronic Financial Transaction Act, companies will be required to provide reinforced security, and consumers can use them more safely.”

Believe it or not, the market of exchanging points and mileage for rewards is still relatively young. It only just took off in 2000, when credit card companies and mobile phone service providers reinforced their membership points programs to attract customers.

Because membership and mileage points are treated as liabilities on their accounting logs, companies welcomed the idea of a service that allowed an exchange.

As conglomerates began operating integrated patronage point programs in 2006, the number of members skyrocketed. Thiat and similar Internet sites allow members to use points from various credit cards, retailers and telephone companies toward a purchase. Points can also be converted into gift certificates. Thiat members pay up to a 15 percent service fee to integrate their points and make purchases.

Shinsegae Point, by the Shinsegae Group, had 14 million members in 2009; that number grew to 19.4 million this year. Lotte Members, operated by the retail giant, had 17.4 million members in 2009, with 27 million members this year. GS&Point, by GS Group, also saw a significant increase in its members. It started out with 4.1 million members in 2008, and that figure jumped to 15.9 million this year.

Users have also begun to accumulate credit card miles at a significant rate. In 2006, credit card users accumulated 722.5 billion won worth of points, and the amount grew to 2.244 trillion won last year.

Meanwhile, when asked about the hacking incident in October, Thiat told the JoongAng Ilbo that it is currently conducting an internal probe. Victims, it added, will be fully compensated.

BY JEONG JONG-MOON, SER MYO-JA [myoja@joongang.co.kr]

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