Your company has a sound business plan and you have a gifted marketing team charged with increasing the growth of your business. Your team painstakingly creates strategies around lead generation and acquisition some of which are executed with offers and promotions.
Enter the fraudsters.
Promotion, loyalty and referral rewards are to fraudsters as candy is to kids. If an offer is in the market, you can nearly guarantee there is a fraudster looking to take advantage. The more promotions or offers that are created, the larger the playing field the fraudsters have. Promo abuse and coupon or voucher fraud affects a wide-range of industries from e-commerce, to gaming to travel and hospitality. Any business that incorporates promotions into their marketing strategy is susceptible. This article examines fraud types that commonly result from growth marketing initiatives, how it tends to operate and how your fraud management efforts can be maximized to deter it without impeding the growth of your brand.
What is Promo Abuse, Coupon and Voucher Fraud?
The main idea behind this type of fraud is to manipulate a promotion or offer to the advantage of the fraudster at the expense of your company. Promotions and offers already have carefully calculated ROIs built into them, so when abuse occurs, this negatively impacts the cost of running that promotion.
This type of fraud is heavily prevalent in the e-commerce, gaming and travel/hospitality sectors because of the way those customers transact, primarily online. In fact, there are entire companies who exist only to aggregate promo codes. In instances of promo abuse, the types of scams are as varied as the promotions themselves. Online social gaming alone is a $19 billion global industry.
One example of promo abuse comes in the form of referral promotion fraud. For instance, if a company’s growth strategy depends on new account activation, the company may incentivize users to refer the product/service to their personal network. The customer is given a referral “bonus” of some inherent value when they successfully recruit a person in their network to join/purchase/activate with the company. Oftentimes, the new recruit is further incentivized to take their contact up on the offer. Fraudsters manipulate these offers by creating fake accounts in order to continue to receive the referral bonus themselves instead of bringing in a new customer. Especially vulnerable are referral promotions that offer cash rebates or gift cards.The fraudster banks the referral money and can resell the purchased goods. Anyway you slice it, this is theft that reduces your business’s profitability.
Coupon and Voucher Fraud
This type of abuse escalates quickly when fraudsters are able to steal coupons or manipulate them in some way other than its intended use. The stolen coupons are collected manually then sold to criminal enterprises online. The proliferation of the stolen coupons is guaranteed now that they exist online. Most coupons and vouchers have terms and conditions that specify reproductions will not be validated, but this validation can prove tricky for merchants to spot.
Terms to Know
ROI — Return on investment
KYC — Know Your Customer
The Pros and Cons of Promotional Offers
With all of the risks associated with promo abuse, coupon and voucher fraud, your company may question if the benefits of such promotions outweigh them. With the right fraud prevention strategy in place, the answer is a resounding yes. Promotions and offers are solid strategies to bring new business to your company, reactivate existing business or increase spend. Nearly $140 million in digital coupon redemptions occurred in the U.S. in 2019. Furthermore, research shows that 68 percent of consumers believe promotional offers build brand awareness and loyalty.
Besides the risk of fraud, some detractors argue that discounting can decrease your customer’s perceived value of your brand. Additionally, the cost of these promotions is real, so they must be factored into your overall marketing budget in order to glean a total ROI.
The odd truth about promotions is that even a negative ROI caused by fraud losses can still be considered a business win depending on the objectives. For example, if promo code redemption is the key performance indicator for a ride sharing service, they may have codes redeemed on accounts mapped back to the same person. But the goal of redemption and usage was met.
Examples of Promo Abuse Deterrence
The explosive growth of online gaming created a competitive environment for these companies to attract and retain their players. Many gaming sites utilize rich offers of free money as a sign-up bonus. This is an effective marketing tool that gave these sites a competitive edge. However, our study with iGaming Business revealed that the majority of these companies view promo abuse as the most costly fraud risk. Emailage’s network technology, rooted in the dynamic data from email addresses, deters promo abuse risk without frustrating and chasing off new gamers. Email Risk Score is a solution that gives gaming companies insights into who is redeeming their offers so fraud risk stays low without additional friction added to the customer’s experience.
Identifying and Preventing Promo Abuse, Coupon and Voucher Fraud
Emailage’s specialized risk assessment technology has bespoke models for all industries. By using dynamic data from a customer’s email address, your company can better ascertain exactly who is registering for or using a promotion and reduce fraud risks. The full suite of Emailage products leverage different data points to ensure your customer’s have the best experience while eliminating costly promotion fraud.
The Email Risk Score combines the power of the dynamic data linked to customer email and ever-adapting machine learning to give businesses complete transparency and confidence in who is behind a transaction. This technology increases authorization speed while decreasing customer friction and mitigating fraud risk.
The Digital Identity Score builds upon the dynamic data of email addresses to further increase approval speeds and lower risk. Your fraud analyst team can leverage the processing power of the score’s multi-faceted analytics and focus their efforts on only the riskiest of transactions, rather than tending to long manual review queues.
The latest evolution from Emailage is Portal 3, which provides at-a-glance insights with a refreshed interface designed to give manual review teams speed, accuracy and efficiency.
Emailage’s suite of fraud prevention tools are all scalable for any industry and provide best-in-class, customer-centric global support to help you stay ahead of the fraudsters so businesses can promote growth, not promotion abuse.
Analyzing Promo Abuse, Coupon and Voucher Fraud
Creating, offering and maintaining promotions to attract and retain customers is vital to the success of many companies across industries, and these tactics are especially prevalent in e-commerce, gaming and travel/hospitality. Promotions are so massively popular with consumers that 92 percent of them are looking out for offers even when not expressly in the market to purchase anything.
However, implementing promotional marketing strategies without an eye for promo abuse mitigation can lead to real loss. These losses are manifested as actual fraud costs, and lost revenue resulting from good customers who abandon high-friction transactions, which can result from rigid fraud prevention strategies that treat all transactions a single way.
Take for example, the instance of fraudulent or expired promotion codes proliferated on an internet site or affiliate. Many legitimate consumers will get all the way through their registration or checkout experience only to abandon the transaction due to a promo code error. Your company has left a poor impression on the consumer and risks losing future transactions. A measured, proactive approach guided by dynamic data is key to combating fraud while minimizing negative impact on your customers.
Resources for Promo Abuse, Coupon and Voucher Fraud Mitigation
Emailage is a leader in fraud prevention solutions tailored to a wide variety of industries. Our Knowledge Hub is home to a wealth of content, case studies and research that helps fraud leaders navigate the risk and fraud landscape.
Additionally, as part of the LexisNexis Risk Solutions family, Emailage has a wealth of resources in its arsenal to help your company’s risk managers and fraud teams hone their strategies to identify and prevent promo abuse as well as fraud of many types. Your company need look no further for the most cutting-edge suite of technology and risk management solutions. Emailage’s customer-centric support ensures your fraud management team’s success.
For merchants that scale their businesses with new customer acquisition and retention promotions, preventing this type of fraud is a key fraud type to focus on as part of your fraud prevention efforts. Emailage’s technology and global data consortium saves time and effort in identifying fraud, while enabling companies to provide a frictionless checkout or registration experience for your customers. Across industry and segment, Emailage’s global network intelligence gives fraud leaders a leg up to outsmart promo abuse, coupon and voucher fraud.
Growth and promotions go hand-in-hand for many companies, so implementing smart strategies to thwart promo abuse should be part of the overall marketing strategy. Not only is this important from a risk management standpoint, but also for customer insights. Your scalability and success depends on knowing your customers, but if many are coming through your doors under fraudulent terms, it represents a double loss. The right promotion, to the right customer, at the right time equals promotion adoption success. With a smart network-driven fraud prevention strategy in place that success will be game over for the fraudsters.