The Hidden Cost of Promo Fraud

Promotions play a big role for nearly every retailer to drive customer acquisition as much as retention. But retailers often are entirely focused on providing incentives to as many consumers as possible to increase sales and thus overlook a big concern that’s affecting their bottom lines: promo fraud.

A whitepaper from Ekata titled “Reining in Promo Fraud” looks at the importance of assessing risk during the account-opening process and how doing so provides companies with the ability to reduce promo fraud, increase the return on investment from marketing campaigns, and grow overall profitability.

Promo fraud has been an area of concern for some time, and this trend is set to continue as the cost of living increases and consumers continue to hunt for deals. Some examples of promo fraud include a customer reusing a coupon multiple times or opening multiple accounts to take advantage of a current promotion. Ekata notes that sign-up incentives, referral bonuses, and loyalty discounts are some of the main promotional campaign types where fraud is prevalent.  

For many retailers, promo fraud is just the cost of doing business. In fact, data from Kount revealed that 42% of respondents said their company lets consumers abuse promotions. But promo fraud can have an impact on a company beyond hurting its bottom line.

For one, it can distort a company’s marketing budget. A retailer can see an influx of consumers coming through after a recent promotion, but the increase in volume may not necessarily give a full picture. A company won’t know the difference—at least not at first—between those abusing the promotion and those who are genuinely using it.

In general, promo fraud can highly distort ROI numbers. “You may think a promotion brought in 100 new customers. However, when you factor in duplicates due to fraud, you discover that you acquired only 75,” according to Ekata. “It skews visibility into your customer base. When fraud consumes a big chunk of your promo budget, your campaigns don’t deliver the desired results. Fake accounts soak up new customer perks. So the cost per new customer is higher than it appears, which hampers decision making for future campaigns.”

Putting the Right Solutions in Place

When companies run promotions, they can benefit from actively building anti-fraud strategies into those campaigns. This involves implementing technology solutions to assess accounts for fraud risk, minimize friction for low-risk customers, and prohibit high-risk users from completing transactions or signing up for an account.

It’s important to verify that data elements — such as email addresses, telephone numbers, and physical addresses —are legitimate and examine how they have been used in past online transactions. For example, if an email address is being used for the first time in an online transaction, that increases the likelihood of fraud. An IP address with thousands of associated email addresses may also be suspect.

The Ekata Identity Engine helps ecommerce companies validate the identity elements used by customers and analyze how they have been used in other digital interactions over the last 90 days. Risky transactions can then be routed to a workflow with more scrutiny, while low-risk applicants can be fast-tracked through the account sign-up process.

This identity verification process yields significant results. For example, when Ekata worked with one global payment service provider, it reduced chargebacks by 17% and increased acceptances for payment by 15%. On a global travel marketplace, it caught 93% of bad actors at account opening.

Promo fraud needs to be taken more seriously because it has an impact on the bottom line and distorts marketing campaigns’ data in significant ways. Using technology solutions to assess the risk of customer identity elements at account openings helps to catch potential fraudsters before they have a chance to act.