Coupon fraud can be difficult to detect and prevent. The main reason for this is that it can be a challenge to determine whether a person doing it is making an honest mistake, or is deliberately trying to defraud a company.
To cut down on the guesswork, here are some coupon fraud prevention techniques.
1. Emphasize education and communication regarding coupon fraud
A good starting point for a business wanting to stop coupon fraud is to educate its employees – especially its Trust & Safety team – on how to both recognize and report coupon fraud. Some common signs that a coupon may be fraudulent include:
- Its barcode appears to be modified, or is missing
- It’s for a “free” item, or worth more than the price of the item it’s discounting
- It doesn’t require the user to purchase anything in order to redeem it
- It doesn’t have any terms or conditions associated with it
- The user had to purchase it from someone
If a business can identify a pattern of coupon fraud, there are several organizations it can contact to investigate, depending on what it believes the scale of the fraud to be. These include:
- Coupon Information Corporation (CIC)
- United States Postal Inspection Service (USPIS)
- State attorney offices
- Income Return Services (IRS)
- Federal Trade Commission (FTC)
- Financial Crimes Enforcement Network (FinCEN)
- Federal Bureau of Investigation (FBI)
- United States Secret Service (USSS)
2. Limit the number of times coupons can be redeemed
Coupons should always have a limit on the number of times they can be redeemed by the same customer. So there should be some sort of quick identity verification process (usually email address or phone number) involved in using a coupon, so a customer doesn’t double-dip.
It can also be useful to place a cap on the total number of times a coupon can be redeemed. This helps not only to stay within the advertising budget but also to deter fraudsters from abusively redeeming offers over and over again.
3. Place additional conditions on the use of the coupon
The fewer restrictions on how a coupon can be used, the more vulnerable it is to abuse. Consider adding conditions such as requiring a minimum purchase before the coupon can be used.
Or, in addition to the expiry date, specify a time-of-day window in which the coupon is valid. Another option is to place a geographic restriction – using IP addresses for digital coupons – on where a coupon can be used, to limit legitimate uses to areas actually close to a business.
4. Limit the number of partners used to distribute coupons
Deciding how many other companies to allow to distribute coupons is a balancing act. On one hand, more distribution partners means wider reach. On the other hand, it also means a greater risk of fraud if a partner doesn’t do its part to distribute the coupons securely.
5. Invest in advanced printing technology for physical coupons
If a business deals in physical coupons, there are new printing technologies that make them more difficult to counterfeit. These include microprinting, watermarks, and specific color combinations.
They also include next-generation barcodes that are more difficult to decode, can void the coupon immediately after it’s used, require smartphone verification, and more. Consider using this technology on coupons that offer free items or heavy discounts on high-priced items.
6. Use random or custom digital coupon codes
A common mistake when making digital coupon codes is to represent them with easy-to-guess phrases. Codes like “10PCTOFF” are vulnerable to being brute-force guessed by scraper robots used by fraudsters to find and abuse coupons. Instead, randomize codes, and try to vary their length as well. You can also generate a unique code for each customer you send an offer to.
7. Monitor and gatekeep web traffic regarding the use of coupons
Configure website settings to allow robots from search engines (as this will help with exposure), but don’t allow any other robots. Also consider setting up a robot challenge (i.e. reCAPTCHA) for pages where users can input or submit information, to deter robots from rapidly creating accounts to abuse offers.
In addition, use software that monitors web traffic and uses behavioral analytics to check for activity where fraudsters may be attempting to abuse coupons. An example might be an unusually high number of coupons redeemed in a short amount of time.
8. Place limits on cart abandonment rewards
Another way people abuse digital coupons is to put items in their shopping cart, then leave the website and wait until they are emailed a discount coupon enticing them to return and complete their purchase. Consider reserving these types of coupons for first-time shoppers, or setting other specific conditions on when cart abandonment coupons will be sent out.
