Promo Abuse Fraud—How to Avoid It

Promo abuse is often overlooked by companies, and this can lead to huge losses. Unlike many other types of fraud, promo abuse can be performed by both criminals and legitimate customers—which makes it harder to spot. At the same time, companies have to introduce new promotions in order to attract new customers and keep loyal ones happy. So, what should a company do to ensure their promos aren’t abused? 

We at Sumsub decided to answer this question by diving into promo abuse and its most common types. We’ll also share some tips on confronting fraudsters while ensuring that promotions reach the intended audience. 

What is promo abuse fraud?

Promo abuse is when customers misuse a company’s promotional materials. This can be referral bonuses, vouchers, sign-up bonuses, coupons, or discounts. While such campaigns aim to attract new audiences, certain individuals attempt to trick the system by taking more than their fair share—and, often enough, they succeed. 

Who is affected?

Any company using promo campaigns can become a target for fraudsters. Some of the industries that should be on the lookout are:

• Gaming 
• E-commerce
• Car-sharing
• Delivery 
• Streaming platforms

Common types of promotions

Before talking about promo abuse in detail, let’s first list some of the most popular campaigns businesses use to attract customers:

• Coupons 
• Sign-up bonuses
• Free/discounted trials
• Referral bonuses
• Loyalty rewards

There are ways to abuse all of these campaigns. Any customer can create several accounts to get one free trial period after another, never paying for the subscription. People can also abuse loyalty rewards by taking over accounts and transferring the bonuses to themselves or changing billing addresses. All of this can financially damage a company and lead to lengthy court proceedings. 

To wrap up this section, any campaign can be subject to promo abuse. Therefore, companies have to take action.

How promo abuse works

Both fraudsters and customers start from the same place, which is creating multiple accounts. The main difference is in scale and in the details. For example, a person can send a referral link to themselves or alternate between several accounts to continue free trials.

Consequences

It might sound like a couple of customers getting an additional $10 or so from a giant promo campaign shouldn’t cause an issue. However, when this gets scaled to thousands of people simply taking money and not turning into actual customers, it’s a different story. Not only does this have a negative financial impact, but it also puts a company in a bad spot, as it diminishes its reputation and makes loyal customers feel less important. 

Financial losses might also lead to price increases, which might actually create customer churn. 

So, should companies just stop doing promo campaigns? Unfortunately, this isn’t the solution, as the very same campaigns prove to attract new customers and keep loyal ones happy. What companies should do is put more thought into protecting themselves. This can be done both by introducing stricter rules for campaigns and implementing security systems into their websites and apps. 

How to prevent promo abuse

When confronting promo abusers, companies still have to keep legitimate customers happy. Therefore, companies need to find a solution that fits everyone. 

Method #1. Know Your Customer (KYC)

One approach is introducing an efficient Know Your Customer (KYC) solution, which will be able to help conduct proper identity verification. This may include address verification and document verification.

 This way, companies will be able to spot multiple accounts created by the same person. Additionally, they can check digital footprints, device fingerprints, emails, and user behavior. This will allow companies to spot fraudsters who managed to present themselves as legitimate customers during the initial check. 

Companies should remember that too many checks will lead to drop-offs in new customers. To avoid this, they can separate the checks into several stages. For example, users can be initially onboarded using a pre-screening process like email and phone risk assessment, followed by one-click or doc-free verification. Over time, the user can be put through additional checkpoints as they use the service.

Method #2. Make more complex promo rules

If all a person needs to get a bonus is register or simply click a link, there’s a huge risk of losses. Before organizing any campaign, companies should think of all the possible scenarios fraudsters and threat actors may use to abuse these bonuses—and create rules accordingly. For example, companies can award bonuses only after a customer makes their first purchase. 

Companies should put limitations on vouchers, as some users may use and re-use the same one for years. Therefore, it’s important to ensure that bonuses can be used only once. 

Finally, companies should use non-generic promo codes. For example, if your Christmas discount code is simply “X-Mas”, chances are that people will guess it and abuse your promo without adding any value to the company.

Method #3. Analyze links and track locations

Another way to spot promo abusers is to look at IP addresses and check location. If you see that several accounts were created from the same IP address, then there is a significant possibility that you are dealing with multiple accounts. The same goes for several accounts created using a VPN IP address. To analyze all of this, companies can use special tools such as device fingerprinting or determine proxy IPs using VPN solutions. 

FAQ

• What is promo abuse?

  Promo abuse is when unscrupulous customers try to benefit from referral bonuses, vouchers, sign-up bonuses, coupons, or discounts.

• What are some examples of promo abuse ?

  • Coupons
  • Sign-up bonuses
  • Free/discounted trials
  • Referral bonuses
  • Loyalty rewards

  In most cases, promo abusers create several accounts to get additional benefits.

• How does coupon fraud happen?

  Just like other types of promo abuse, both customers and fraudsters try to use coupons several times or use errors in coupons to benefit. For example, a fraudster can duplicate a coupon and present it time after time to a company. Fraudsters can scale the scheme by selling counterfeit coupons to actual customers for low prices.