Everyone knows that making your own fake coupons to use in a store isn’t a legitimate money-saving technique – it’s fraud. But where do you draw the line between savvy shopping and fraudulent behavior when shopping online? If you’re a return customer, and you find a coupon code meant for “new customers” but you use it anyway – is that fraud? If you provide an email address for a coupon, then use a different email address the next time for a new coupon, and a “burner” address after that – is that fraud?
And if you have an army of people working for you who do all that, so you can get discounted products that you can turn around and resell for a profit, is that… okay, presumably we can all agree that’s fraud.
To sellers, none of this is behavior they condone, yet many feel powerless to stop it. And now a new report estimates it’s a $100 billion problem that ultimately affects us all.
In its report “Policy Abuse and Its Impact on Merchants: Global Benchmarks 2023,” the ecommerce fraud and risk intelligence company Riskified studies the problem of “lenient return policies, generous promo code offerings” and other customer-friendly features that can end up backfiring.
90% of online merchants surveyed say policy abuse is a significant problem for their bottom lines. Cracking down would be good for business, but potentially bad for their public reputation. So sellers are forced to “strike a difficult balance between keeping customers and accepting an inevitable loss in profits,” the report finds.
Consider coupons, discounts and loyalty rewards that are offered to entice new shoppers, or encourage frequent shoppers to come back and buy more. With many such perks offered on the honor system, it can be easier to engage in what retailers consider fraud when shopping online. Riskified defines promotional abusers as “customers who take advantage of promotional offers or loyalty programs in ways that were not intended by the company.” Examples include “using multiple coupon codes for a single purchase, creating multiple new or fake emails to use a ‘new customer’ promo code, exploiting glitches in online systems, or returning items after receiving rewards.”
86% of the merchants surveyed said their costs from promo code or loyalty program abuse were “somewhat” or “very” significant. In one example analyzed in the report, an online merchant found that just 4,000 customers were responsible for creating 137,000 fake accounts, in order to take advantage of a 35% off “first-time customer” coupon – which cost the company more than $14 million in one year. It only takes a “tiny fraction” of customers, this showed, to cause millions of dollars in losses.
Worse yet are other forms of abuse like return fraud, or falsely claiming a shipped item was never received, which retailers say are also growing problems. That’s especially true when such behavior is connected with organized criminal efforts to steal merchandise in order to quickly resell it. It’s much more difficult for anyone to justify that type of abusive behavior.
When it comes to most promo abuse, though, one could argue that shoppers doing whatever it takes to get a discount that a retailer is freely offering, are just legitimately trying to save money and get the best deal possible. Riskified calls it “friendly fraud.” Customers engaging in “relatively benign acts” like stacking promo codes or creating temporary email addresses to get additional coupons “are sometimes considered the cost of doing business to keep an overall good customer happy,” the report found.
But that is what’s really costing retailers in the end. Virtually all of the retailers surveyed said offering generous and lenient policies is important to attract and retain customers – even at the risk of negative consequences. “While there may be occasional instances of abuse, most retailers believe that the benefits of these practices outweigh the costs,” the report noted.
“It has been a race to the bottom for merchants who feel that they must offer increasingly lenient programs in order to remain competitive,” Riskified CEO Jeff Otto said in a statement. “Although a wonderful experience for good consumers, a growing spectrum of hidden policy abusers have tipped the scales — deeply hurting merchant profitability.”
Fortunately, for Riskified, it just so happens that they offer services to help identify individual shoppers and flag when they’re trying to abuse policies or get extra discounts. So there are solutions, the authors of the report say. In the meantime, the next time you look for loopholes to save a little extra money when shopping online, think of the billions of dollars in unintended discounts that retailers say they’re giving out. It may hurt retailers in the short term – but long term, the ones paying for those losses could end up being us.
Image source: Mockupr / Tamanna Rumee on Unsplash
