Stamping Out Promo Fraud Online

Tackling Promo Abuse in the Digital Marketplace

In recent years, revenues in the e-commerce sector have surged at an unprecedented rate. Although this growth in revenue is commendable, it has been accompanied by a rise in fraudulent activities. Specifically, promotional abuse is costing American retailers an average of 1.2% of their overall turnover, amounting to an annual loss of $89 billion

Lifestyle Minimalist Online E-shopping Concept

What is promo fraud?

Promo fraud entails the illicit
manipulation of promotional scheme rewards

4.5 Million

PayPal estimates its platform held 4.5
million illegitimate accounts in 2021.
Fraudulent accounts were created to exploit
PayPal’s incentive-based customer
acquisition campaign, which included offers
for $5 or $10 to new users at sign-up.
Shutting down these accounts led to
significant revenue and stock value losses.

Types Of Promo Fraud​
How It Works​
Promo code abuse
Bad Actors manipulate promotional codes or create multiple accounts to misuse rewards in unauthorised manners. For example, a customer may repeatedly redeem a 50% off voucher, despite it being designed for single use.
52% of merchants globally saw an increase in promo abuse in 2022.4
Free trial abuse
Bad actors open multiple accounts with different email addresses to take advantage of rewards meant for one-time use.
77% of consumer survey respondents said they use more than one email address to sign up for free trials
Referral abuse
Bad actors send referral codes to fraudulent email addresses or crack referral codes to collect rewards including cash and gift cards.
Affiliate and referral fraud account for 21% of all fraud encountered by online merchants
Coupon abuse
Disingenuous customers take advantage of discounts in ways for which they weren’t intended.
81% of coupon abuse attempts are from serial abusers — people who try to exploit any offer you’ve got as much as possible.
Loyalty program abuse
Fraudsters crack loyalty program codes to profit from multiple uses of discounts intended for loyal customers or exploit a company’s rewards program by using false identities or account takeover.
Fraudulently redeemed loyalty points exceed £2.6B in value each year

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Risk Management

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What is the Impact?

Owing to the limited legal repercussions—such as monetary penalties or imprisonment—associated with this form of online fraud, promotional abuse often goes unnoticed or is disregarded by businesses. Many lack the means to quantify it and fail to grasp the extent of the issue. However, the impact on the business is frequently more significant than initially perceived as you can see from some of the examples below:

  1. Margin Erosion
  2. Skewed Customer conversion Data
  3. Inefficient Marketing Expenditure
  4. Reputational and brand damage


economy stock market downfall of finacial crisis

You could consider solutions as listed to deliver your conversion to margin control;

Implement Multi-Factor Authentication

Encourage your readers to add an extra layer of security by implementing multi-factor authentication. This will make it more challenging for bad actors to exploit promotional codes.

Implement Multi-Factor Authentication

Encourage your readers to add an extra layer of security by implementing multi-factor authentication. This will make it more challenging for bad actors to exploit promotional codes.

Utilise Machine Learning Algorithms

Machine learning can identify patterns and anomalies in user behaviour that may indicate fraudulent activity. By implementing these algorithms, businesses can proactively identify and prevent promo abuse.

Limit Promotional Offers to Verified Customers

Suggest that businesses should restrict their promotional offers to customers who have been verified through email or mobile number. This will reduce the likelihood of multiple account creations for the purpose of promo abuse.

Monitor User Behaviour

Advocate for the continuous monitoring of user behaviour to spot any suspicious activities. For instance, if a single IP address is used to redeem multiple coupons, it could be flagged for review.

Implement a One-Time Use Policy

Encourage businesses to create promotional codes that can only be used once per customer. This will prevent customers from exploiting the same code multiple times.

Regular Audits and Reviews

Recommend that businesses should regularly audit their promotional campaigns to identify any loopholes or vulnerabilities that could be exploited.

Legal Consequences

Advise businesses to clearly state the legal consequences of promo abuse in their terms and conditions. This will act as a deterrent to potential fraudsters.

Collaborate with Payment Providers

Encourage a partnership with payment providers to flag suspicious transactions. This can help in identifying and preventing promo abuse in real-time.

Educate Your Team

Last but not least, stress the importance of educating customer service and fraud prevention teams about the various tactics used in promo abuse so they can better identify and prevent it.