Digital Coupon Fraud Is Debatable     

By John Karolefski

In the coming years, there will be declining distribution and redemption of paper coupons and increasing distribution of digital offers. How will that change affect instances of fraud, which has been a nettlesome issue for decades? 

Coupon experts contacted by CPGmatters agree that there will be more digital offers in the future, but they disagree on several issues involved with digital coupon fraud.
“Digital promotions are not fraud free,” states Bud Miller, Executive Director of the Coupon Information Center and arguably the industry’s leading authority on coupon fraud. “The lack of a paper trail and the increased complexity of the digital world may provide the criminal element with certain opportunities that are prevented by the use of physical coupons.”

Miller advises CPG marketers to be aware that counterfeiting is just one type of coupon fraud. “Other types of coupon fraud, including the submission of unredeemed coupons, have historically been more costly and challenging to identify, review, and prosecute. Electronic records and software systems have been manipulated in previous cases and great care will be needed to have appropriate auditing trails and other loss prevention techniques in place,” he recommends.

However, some providers of coupon solutions have a different point of view based on their company’s experience.

“Digital coupons can be fraud free,” says Steven Boal, CEO and Chairman of the Board of Quotient Technology, which uses proprietary data to deliver personalized digital coupons and ads to millions of shoppers daily.

“On our own Quotient Retailer iQ platform, we’ve had zero reported instances of fraud – and that should be expected. We designed the platform to be fraud-free, and the platform will not allow redemptions in excess of individually identified coupons delivered. Unlike offline paper coupons, digital coupons on the Quotient platform provide no opportunity for fraudulent behavior,” said Boal.

According to Richard Thibedeau of the Intelligent Clearing Network (ICN), digital coupons which are tied to a retailer’s loyalty card referred to as “click to card” are very secure and account for just about all the digital couponing done today. But there is potential for fraud with mobile coupons, points out the COO of the software-as-a-service (SaaS) company that electronically validates and clears paper and digital coupons in real time at the point of sale.

“Digital coupons that are executed from a mobile device – which presents the coupon on the screen for the cashier to scan – are a coupon counterfeiter’s dream because there is no fraud protection solution available in the industry yet,” he says. “This is why mobile couponing so far has been a disappointment and most – if not all – retailers will not accept them. Until someone can provide a fraud-free mobile solution, digital coupons will mostly be of the ‘click to card’ variety. [That is because] a POS scanner can’t decipher if the manufacturer coupon it just scanned and redeemed came from a paper coupon presented by a consumer or from a mobile device presented by a counterfeiter.”

Meanwhile, Ron Fischer of Redemption Processing Representatives points out that it requires technical skills to activate an offer in the retailer’s POS. The denials of digital to counterfeit that RPR receives are due to the offer not being entered in the CPG’s database causing the redemption being denied. Promotion agencies and CPG field personnel may not know the requirements, says the president of RPR, a digital and traditional coupon processor serving retailers and manufacturers.

The coupon experts also disagreed about whether CPG manufacturers are generally aware of the potential of fraud with digital coupons. 

“The level of awareness about the potential of fraud with digital coupons appears to be lower than it should be,” says Miller of the CIC. “This is likely due to the general infancy of this type of promotion and a lack of oversight.” 

Fischer of RPR says digital fraud is usually detected when redemption has occurred. The awareness among CPGs depends on their ability to control their POS.

Thibedeau of ICN feels strongly about the potential fraud associated with mobile coupons. CPGs know this, he asserts, and will not distribute them. “They understand that retailers cannot currently accept a mobile coupon with any level of confidence – again because there is no way to verify at the point of sale that a given mobile coupon is valid.”

CPGs shouldn’t be concerned with digital coupon fraud, according to Boal of Quotient. “Fraud with digital paperless coupons on the Quotient Retailer iQ platform is never even a topic of discussion with CPGs or retailers. We designed our system to be fraud-free, with multiple checks and balances that maintain the integrity of our platform,” he says.

With the gradual shift to paperless coupons, Boal says the industry should expect a sharp decrease in fraudulent activity. That is good news as the industry continues to move to digital vs. paper.

But Miller of CIC cautions that it is too early to tell how a shift from paper to digital will impact the overall fraud costs to the industry. Criminals will follow the money regardless of the distribution method.

“Methods to commit fraud will change, but fraud will not be eliminated,” he states. “While technology can be a great tool in the fight against fraud, it is far from perfect and an over-reliance on it can expose or even create new vulnerabilities. The credit card industry is an example of an innovative, high-tech industry with increasing fraud losses despite the implementation of many excellent loss prevention tools. To complicate things, challenging economic times have historically led to increases in couponing and other promotional activities, providing criminals with more potential targets and greater opportunities to commit fraud.”
Miller reports that the Coupon Information Center is already working with Federal law enforcement agents in this area. “We are not currently aware of any industry-wide estimates on the cost of this type of fraud,” he says. “But if the matters we are working on are any indication, however, it is likely to substantial.”

(Editor’s Note: This story is Part One of a two-part series on coupon fraud. Part Two will be published next issue).

                                               Early May 2020
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