Did you know that 49% of ecommerce businesses have experienced an increase in promo abuse since 2020? Meanwhile, loss from direct and indirect loyalty program fraud is increasing at an alarming rate, currently estimated at $1B each year.
What is Promo Abuse and Loyalty Program Fraud?
Loyalty program fraud happens when a customer is abusing the terms and conditions of a loyalty program for financial gain. Promo abuse is a type of online fraud that involves a customer taking advantage of a business’s rewards, sales, and promotions.
What are the Costs?
According to Staying Ahead of the Fight Against Fraud in Southeast Asia, over 75% of surveyed organisations acknowledged that each type of fraud they experienced over the past 12 months has had a moderate to significant financial impact on their business. Those that experienced promotion abuse reported a loss of 31% in their annual marketing spend as a result.
While most merchants consider the allocation of funds to incentivise current customers or acquire new ones a necessary spend, all merchants expect a return on their investment. When fraud consumes a big chunk of your marketing budget, ROI is distorted.
Unfortunately, the costs of this fraud are so far reaching, they can affect a company’s reputation and opportunity for growth. Whether a company experiences a depleted inventory, or are forced to recalculate their distorted customer base, the results are the same. Fraudsters win, merchants lose.
To read a more in-depth description of promo abuse fraud, please check-out our latest eBook Reining in Promo Fraud.
3 Steps to Prevent Promo Abuse and Loyalty Program Fraud
While eliminating promo abuse and loyalty program fraud in this ever-evolving digital landscape may not be possible, there are ways to prevent it. Ekata recently worked with Singapore-based company Status Match. Below are some tried and true steps to take to mitigate fraud.
1. Identify Fraud Early
The most common form of promo abuse is the creation of fictitious accounts. The typical loyalty program fraudster may also create a synthetic ID, or else gain access via account takeover. Therefore, identifying a valid customer over a scammer should be done during the account opening process. Identity verification software such as Ekata’s Account Opening Solution is your ticket to seamless digital identity validation. Such tools allow you to analyse how each identity element (such as name, email, phone, etc.) behaves in each interaction. This enables an accurate assessment of a customer’s eligibility for any given promotion.
2. Balance Customer Experience with Anti-Fraud Measures
The empowering data provided by a global identity verification solution gives businesses the ability to find that elusive balance between providing exceptional customer experience and fraud mitigation.
Imagine a workflow that fast tracks a “good” customer through the account opening or transaction with little to no friction. For those deemed ‘medium-risk’ this could be done by only adding step-up authentication (like sending a code to email or phone); and declining the “high-risk” account openings altogether.
3. Remember – You’re Not Alone
According to a recent Ekata survey, 70% of companies used three or more tools to help make this incorporating-friction-process smoother. Remember that no single solution will solve all your problems. It is important to bring together your tools – and expertise – to best respond to the unique needs and challenges of your business.
The right partner will help you to analyse your identity verification data and, in the case of promo and loyalty abuse, steer you in the right direction when it comes to account opening solutions. Wait until your marketing department learns that their budget will be spent acquiring loyal customers – without data skewed by fraudsters!
To read more about how Status Match stopped loyalty program fraud, please read our case-study here.
To learn about how Ekata can partner with you to best prevent promo abuse, give us a call today.