Coupons and promo codes: Abuse and fraud prevention
Coupon fraud refers to people misusing coupons and promo codes to get unjust discounts. For a business, such actions damage their reputation and cause huge monetary losses. According to a global news agency on online payments, businesses in the US lose between $300 million and $600 million every year due to coupon fraud. In this blog, we will discuss the types of frauds and their impact on businesses, as well as methods to prevent them.
Types of coupon code fraud
From general customers to company employees, affiliates, and partners, anyone can misuse coupon codes in various ways.
Refer-a-friend or refer-a-family programme is a great way to acquire new customers. However, miscreants can make duplicate email accounts in their name or post the code on social media. In the latter case, you get a new addition to your email database, but the customer acquisition cost increases. For example, a customer who could sign up directly on your website through a social media post now does so using your $100 coupon code.
Cart abandonment voucher
Online buyers are aware that when they add an item to the cart and abandon it before purchase, your system retargets them with a discount offer. This encourages them to intentionally abandon the cart and use your voucher to purchase the second time. You can counter this by setting limits to the number of times customers can benefit from the voucher in a quarter, a year, or a lifetime.
Leaked coupon codes
There are chances that your coupon code leaks on community-driven discounting sites. While this increases your visibility, it is not a long-term business solution. Most customers who buy through discounting sites are one-time buyers. If you want repeat customers, you will have to offer discounts again, which will chip away your profits over the long term.
To increase margins, affiliate networks register each order as a new customer with your voucher. While the customer pays the full price of the product or service, the affiliate network gets the discount value. To resolve this, your system should detect and flag such anomalies for manual review and set budget or redemption limits per vendor.
Reselling own inventory
It is a common practice among marketplace sellers to buy their inventory using your promo codes and place the items back on sale. This way, they pocket the amount equivalent to the promo code offer and resell the same product through your marketplace while you see fake KPIs on your dashboards. Your fraud management system should detect such frauds by monitoring the device ID where the order originated from and limit the use of a coupon code from that device. The system should also monitor the number of coupons redeemed against each vendor and detect red flags.
Some vendors who are responsible for logistics generate fake orders. This is common in food delivery and online cab hiring businesses. An agency owner or a driver generates a fake order and pockets the discount. As a marketplace or as an aggregator, you lose money and get fake KPIs. Your system should monitor and benchmark the coupon codes and limit their use to a unique device ID or a browser.
Apology voucher abuse
Often, your customer care department issues a discount voucher to a disgruntled customer to prevent churn. This works well for some time until the customer realises that you offer a coupon every time they call and complain and decide to misuse it. The fraud detection system should track the number of times you issued a coupon to a customer and the reason for such an issuance. If it happens multiple times, your customer care team should get automatic alerts before issuing a code next time.
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How can Infosys BPM help?
Our fraud detection and prevention analytics helps organisations analyse huge and complex data for anomalies and false positives. Read more about the role of predictive analytics and machine learning in fraud management.