Checkout and Promo Abuse: The Latest Fraud Impacting Retailers

With ​​4.2 million retail establishments in the U.S. alone, it can be difficult for retailers to stand out from the competition. Aside from offering great products and getting to know their customers better, many retailers opt for product or pricing scarcity (e.g., limited-time offers or special editions) and promotional offers (e.g., sign-up bonuses, referral bonuses, and vouchers) to generate additional buzz.

When done well, these offers can increase both revenue and customer loyalty. Unfortunately, these programs are also frequently targeted by fraudsters.

Checkout Abuse: A Challenge for Retailers

Because limited-time offers and special editions create a high level of demand among consumers and, as is often the case with special editions, command price premiums, they're ripe for fraud. Checkout abuse is similar to scalping — fraudsters use automated bots to instantly buy up the entire supply of limited-time offers from numerous e-commerce sites and then resell them for a profit.

While fraudsters are typically known to target items like limited-edition sneaker releases from major brands, in recent years they’ve begun targeting popular electronics too. The consequences for brands and retailers can be significant. Offers that are intended to reward and build customer loyalty can instead have a massive reputational impact for brands, disappointing genuine customers and forcing them to go to third-party websites to buy a desired item.

Promo Abuse: Undeserving Freebies

Similarly, sign-up bonuses, referral bonuses and vouchers reward customers for creating a new account or encouraging a friend to create a new account — something that's easy for fraudsters to abuse. Ravelin’s Online Marketplaces reported that 52 percent of companies have noticed an increase in refund and promo abuse activity over the past year.

To take advantage of promos, fraudsters may create multiple accounts to obtain more than one sign-up bonus, repeated free trials without ever paying, or bonuses by referring themselves. These fraudulent activities lead retailers and marketplaces to give away bonuses or access to services without earning the customer acquisition and retention the promos were designed to encourage.

Ending Checkout and Promo Abuse Starts With Better Risk Assessment

In both checkout and promo abuse, fraudsters can reap the benefits of special offers by creating accounts that look like legitimate customers. But the sheer volume of checkout abuse creates an added headache for retailers. E-commerce sites are flooded with fake account sign-ups all at the same time, making it difficult for them to accurately verify legitimate customers; they either let fraudsters through or bog down their whole system for genuine customers.

To stop these abuses, e-commerce sites need to be able to assess the risk of new accounts in real time. This involves not only validating the data entered during sign-up (such as if the email address is real), but validating the relationships between that data (if the name entered belongs with the address entered) and behavioral data (if the email address entered was just created) as well.

These connections are extremely important in determining if all of the sign-up inputs are from a genuine person looking to participate in a promotion or a bad actor looking to exploit a retailer’s programs. Retailers that strengthen their risk assessment will get greater return on investment from their promo programs, boosting their sales, strengthening their brand image, and rewarding loyal customers in the process.

Jordan Reynolds leads the e-commerce and marketplaces segments at Ekata, which proudly supports some of the largest global retailers as a global identity verification and fraud prevention solution.