By Jess Leroy of TeleSign

Coupon and promo codes have been a tried and true method of attracting new business. While customer acquisition is always a good thing, businesses should be on the lookout for users attempting to exploit these efforts for their own fraudulent gains.

Jess Leroy
(Photo courtesy of TeleSign)

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In an ideal world, the coupon or promo code entices new users to sign up to try your service for free or at a discount, then become loyal, paying customers. Unfortunately, some users do find loopholes and take advantage of promotions. Without safeguards in place, there is nothing stopping abusers from repetitively and unrightfully taking products and services. This results in significant revenue loss and an increase in operational costs to respond to the fraud.


Business Losses From Coupon Abuse

Before prevention can begin, it’s important to establish where the abuse starts and the type of abuse involved. Let’s use the ridesharing and taxi apps industry as an example.

To attract new customers, ridesharing services and taxi apps often use promo codes to incentivize people to join their service or download their apps. These incentives are designed to be a one-time-deal. However, it is moderately easy to find loopholes and get free rides. In fact, there are numerous websites, businesses and blogs dedicated to showing users how to work the system. This results in losses from multiple sources, including:


Free Or Discounted Rides Users
Car services and their drivers lose revenue in two ways:

  1. Direct Revenue – Neither the company or the driver are charging full price for rides
  2. Opportunity Costs – If drivers are busy with coupon abusers, users willing to pay full price can’t get rides


Referral Fees
When refer-a-friend codes are provided to current customers, that customer also receives an incentive, such as free or discounted rides. If no limit is placed on the number of “friends” that can use the code, current customers can post those codes on social media, websites and blogs, encouraging strangers to use their codes.


Affiliate Payouts
Affiliates receive a commission when new customers download the taxi app and/or apply the coupon code to register for their first ride. Black hat affiliates using unscrupulous tactics can earn thousands of dollars in commissions by allowing fake users into the car service’s ecosystem.


Limit Coupon Abuse at the Source

While coupon abuse is a real thing, it is possible to stop it before your business falls victim to scams and misuse. Some recommendations include:


Use Coupon Codes Strategically
Create codes that expire quickly. In addition, you can create geotargeted codes by state, region or country, offering different discounts in different areas, then track where they are being used.


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Look At The Methods Used To Distribute Coupons
Do the terms and conditions for each distribution method address coupon code abuse? For example, does the T&C for affiliates address the way affiliates can promote your brand, the coupon codes that are commissionable, and penalties for affiliates that are out of compliance?


Change The Channel
Investigate coupon code websites to see if they are publishing codes distributed through another channel, like emails to current users.


Review Tracking Data On Each Code To Analyze Performance
Are there any red flags? For example, if codes are being given to current users for referrals, do certain users have too many friends to be legitimate?


Stop Coupon Abusers During the Registration Process

Typically, a bad actor attempting to take advantage of a coupon or promo code will create a new account each time they want to benefit from the discount or freebie offered. They do this through the use of easy-to-obtain email addresses and/or non-fixed VOIP, pagers, and prepaid mobile phone numbers that are then used to create multiple fake accounts with the same service.

Establishing a phone verification process at new account registration (or app download) can prevent this from happening. Phone verification requires that a user provide a valid phone number (harder for a fraudster to obtain than an email address), which is then verified and attached to their unique account. Each unique user account has one unique phone number affiliated with it. Anyone trying to create a new account with that same phone number could be blocked. TeleSign offers phone verification through SMS and voice one-time-passcodes and frictionless device signaling.

Asking users to provide a phone number also enables ridesharing services & tax apps to take even more aggressive preventative measures in order to stop fraud. By using certain risk assessment APIs, businesses can quickly identify fraudulent users by obtaining real-time security intelligence, data and analytics on the phone numbers provided. This helps prevent fraud from entering a user ecosystem, not just promo and coupon abuse.

Attracting new customers is the key to the success of your business. Be proactive to avoid coupon code misuse before you’re taken for a ride by abusers.


Jess Leroy is the Senior Vice President of Product Management at TeleSign, where he oversees product strategy, vision and roadmap for the company. Jess has over 17 years of industry experience in the areas of Networking, Cloud and Cybersecurity. Prior to joining TeleSign in early 2015, he served as Vice President of Product Management for Riverbed Technology, Director of Endpoint Security Solutions for Check Point and Director of Product Management for Zone Labs, among others.

The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.



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