How to prevent coupon fraud: 7 tactics

Soft fraud behaviors include multiple account creation to exploit promotions, transferring rewards between accounts, misuse of personal information, and abusing limited-time offers.

On the advanced side, hard fraud involves automated scripts or bots depleting online promotions, coupon farming operations, account takeovers, and the distribution of counterfeit coupons. These activities collectively impose a significant financial burden on retailers, necessitating robust security measures to detect and prevent such behaviors.

Instances of coupon fraud are not uncommon, as highlighted by Riskified, which reveals that 9 out of 10 merchants have faced considerable costs due to fraud and abuse. The same study indicates that 86% of merchants find their costs associated with promo code or loyalty program abuse to be somewhat or very significant. In this blog post, we delve into the common types of coupon scamming and offer 7 essential tactics to help prevent them.

When it comes to coupon abuse, retailers should be mindful of several types of fraudulent activities, including:

Easy-to-crack codes

No matter how sophisticated your backend security protocols are, a simple code generation system will be easy to crack and exploit unfairly. 

Referral payouts

New customer referrals often come with significant incentives. As a result, fraudsters will create multiple - and sometimes unlimited - fake new user accounts to take advantage of referral payouts.

Multiple code redemption

Creating fake coupons without setting a limit on the number of redemptions can lead to exploitation. Fraudsters may take advantage by using the same code repeatedly, gaining more value from a promotion than they should.

Fake email addresses

Without proper security measures in place, sharing coupons and discounts through email opens the door to potential fraud. Some customers might create multiple fake accounts to redeem the same coupon repeatedly.

Cart abandonment vouchers

A simple trick fraudsters will take advantage of is visiting the cart, leaving without making a purchase, just to receive the cart abandonment voucher every time.

Targeted coupon campaigns will be a great addition to your digital marketing strategy, but be sure to keep these security measures in mind if you want to avoid coupon abuse and save on your promotion costs.

Make sure that your coupon provider offers a sandbox mode where you can test your campaigns before release. You can also start by releasing small-scale incentives (e.g., for a particular location or store only) to check your coupons for any potential weakness without risking burning the whole promotional budget on the first campaign.

During the issue process, you should set up your coupons attributes so they only become valid after specific conditions are met. Setting clearly defined Profile, Device or Payment data as conditions for validation can help you track who is cashing-in your coupon codes, as well as where and when they’re being redeemed.

Example: Give a 5€ coupon to customers who clicked an email coupon (including UTM parameters), valid when they have a total cart value of 50€.

You can limit the total coupon redemptions that can be made in a campaign, so that you don’t fall prey to coupon abuse. 

Typically all coupons should be single-use, however, at times you might want to offer some of your premium or dissatisfied clients more redemptions. In this case, setting a campaign coupon redemption limit is a good idea to have an automatic failsafe.  

Example: You want to give new customers who sign up for your newsletter a special coupon code valid for free shipping on the next order.

Your coupon settings should calculate the chances of people (and programs) guessing your code to maximize code security.

Example: You want to reward customers for their 10th purchase on your website with a 20€ code to use for their next purchase over 100€.

Adding an extra level of defense against coupon fraud involves controlling the coupon activity period. This safeguard not only protects your promotions from misuse but also enhances customer engagement by encouraging them to use coupons before they expire.

Example: You run a promotion giving customers 50% off their next purchase if they use the code SUMMER-2024 within the next 72 hours.

Applying postcode, city, or country data to coupons is an important part of tracking and analyzing where redemptions are made. A very helpful tool to help limit the spread of coupons is a geofencing software. By drawing geofences around areas on the map you would like your coupons to be redeemed, or not redeemed in some cases.   

Despite implementing various security measures, there's still a possibility of fraudulent activity affecting your coupons. To minimize potential losses, it's crucial for your promotion system to enable real-time edits and responses, ensuring swift action to prevent significant losses.

No matter the industry you're in, there is no doubt that coupons are effective promotional marketing. If you are looking for an online coupon code generator you can use our free tool that we’ve built for you.

With a proper solution for creating, managing, and tracking your coupons, you can avoid issues with code validation, coupon fraud, and email scam.