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Fighting the Fraud: The Paper Coupon Black Hole

12/23/2015

Imagine a problem so big -- yet so subtle -- that it’s costing U.S. retailers and manufacturers hundreds of millions of dollars per year. It’s a method of counterfeiting a currency so simple that instructions are available through the click of a mouse. It's a crime so insidious that many people participate unwittingly,with the result that money disappears into a black hole.

Often considered the scam nobody talks about, paper coupon fraud costs are borne mainly by product manufacturers for which the coupon is redeemed, or by the retailer delivering the discount. Rest assured, however, that money is coming out of the pockets of these retailers and manufacturers in the end, through cutbacks in offers and rising product prices to absorb these costs.

Coupon fraud occurs when a coupon that is submitted for redemption – either by a consumer or retailer – is counterfeit or altered, or used in a way that fails to satisfy the terms and conditions for redemption of said coupon. While intent is important in committing an act of fraud, sometimes that line can be blurred in the case of coupons.

With today’s prevalent technology, sophisticated population and high turnover of checkout clerks, creating and using a counterfeit coupon has never been easier. Bar codes (including the newer GS1 DataBar) are easy to create. High-quality art work and graphics can be rendered in the blink of an eye. High-resolution scanners can copy almost anything quickly and efficiently.

What’s especially concerning about coupon fraud are the many different types: counterfeit coupons, copies coupons, reusing coupons, accepting expired coupons, and return fraud, to name just a few.

 Now imagine a solution that virtually wipes out the problem and puts the money back in the pockets of  retailers and manufacturers. Imagine a method that ensures that coupons can't be copied and distributed, a system where coupons can’t be sent for settlement without a purchase. While not easy, this solution is in practice today and has the potential to save would-be lost dollars due to fraud.

The Digital Solution

Digital coupons are essential to reducing fraud and increasing security for the entire couponing industry. These coupons never exist as paper or other hard-copy form during their entire life cycle. There's no presentation of a bar code when using a truly digital coupon. Digital coupons must be set up in advance to work at a point of sale (POS) and must be selected or taken by a consumer and associated with her loyalty card or other ID to allow the retailer to uniquely identify her when she shops.

Consider the impact of digital coupons on the forms of fraud examined above. With digital, counterfeiting isn't an issue. The coupon won't work unless it's a legitimate coupon that's been set up in advance.  The same applies to copied coupons: A "copy" won't work.  Retailers no longer have to worry about people reusing coupons. Digital coupons are set up to work the exact number of times per person that they are meant to be. It's controlled by the definition of the coupon itself.

Digital coupons also ensure that discounts are only being issued for the exact UPCs of the products covered by the coupon, and that coupon redemption is handled systematically at checkout based on having one of the predefined UPCs in the basket. There are no generic family codes. Expired coupons also become nonexistent in this case.

Digital coupons can also help combat return fraud. They allow returns at the transaction level to be net of coupons, but this is determined by the store return policy.

Keep Up With Consumers

Each year, more and more coupons are delivered digitally, and the move to digital is accelerating. In 2015, more than 900 million digital coupons were "clipped" in the first half of the year. That number is sure to increase through 2016.

Although more consumers are shifting to digital coupons, retailers and manufacturers aren’t as quick to adapt. As technology continues to evolve, so will the methods of using fraudulent coupons. The sooner businesses are able to offer digital coupons, the faster they will be able to save millions of dollars annually in revenue.

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