Protect E-Commerce Business from Bonus Abuse

E-commerce fraud continues to escalate, evidently seen in global losses from online payment fraud projections to exceed $48 billion annually. In 2024, a staggering 269 million card records and 1.9 million stolen U.S. bank checks were shared for financial gains on dark and clear web platforms, highlighting the growing sophistication of fraud attacks. This surge in fraudulent activities presents an urgent need for comprehensive fraud detection solutions to protect your business from bonus abuse and other evolving malicious tactics.​

Bonus abuse is where fraudsters exploit promotional offers like sign-up bonuses or referral rewards, significantly contributing to revenue loss in the e-commerce sector. In this blog, we'll explore how bonus abuse happens, its impact on e-commerce businesses, and how HiTRUST's Veri-id fraud detection solution can help protect your bottom line.

What is Bonus Abuse?

Bonus abuse occurs when bad actors take advantage of promotional offers in dishonest ways to gain continuous rewards. Whether it's a welcome bonus, free spins, or referral rewards, fraudsters devise various methods to exploit these bonuses for their own gains. The consequences of bonus abuse are significant: it leads to financial losses, increased operational costs for handling fraud cases, and turns promotional campaigns into ineffective investment.

Types of Bonuses Commonly Abused

Fraudsters frequently target several types of bonuses. Understanding how these bonuses are exploited can help businesses take the necessary steps to prevent abuse.

• Welcome Bonus: Fraudsters will create multiple fake accounts using different emails and fake personal information to claim a new customer's welcome bonus much more than once. This type of abuse is especially common in platforms that offer sign-up rewards to entice new customers.

• Free Spins: In the online clothing merchants and the gaming sites, free spins are quite the preference since it seamlessly integrates gamification into the buyer's journey. Fraudsters may use multiple accounts or devices to take advantage of free spins, maximizing their benefits while causing losses to the platform by granting too many unplanned discounts.

• Referral Abuse: Fraudsters exploit referral bonuses by referring fake accounts or individuals who don't actually interact with the platform, just to earn instant rewards. This leads to an inflated user base without any real return and losses for the business.

• Seasonal/Promotional Abuse: During sales peaks or limited-time promotions, fraudsters abuse discount codes and bonuses by using multiple accounts to receive more benefits than intended.

How Bonus Abuse Actually Happens in E-Commerce

Bonus abuse is more prevalent than ever in e-commerce owing to the speed of digitalization and instant rewarding campaigns. To make this even easier, fraudsters target promotions that offer easy rewards, and often employ the following tactics:

• Bonus Hunting: Fraudsters actively hunt for bonuses, creating multiple fake accounts or using stolen identities to claim rewards repeatedly. For example, they may use different email addresses or credit cards to sign up and exploit the offer.

• Group Bonus: Some fraudsters work together in groups to refer fake accounts or share the bonuses from a sign-up or referral promotion to increase the number of usable/ permissible identities. This coordinated effort can result in multiple users receiving benefits they're not entitled to.

Why Do Fraudsters Target E-Commerce Platforms?

Fraudsters target e-commerce platforms for several reasons:

• Lucrative Offers: Promotions, discounts, and bonuses are often very attractive from online merchants, to fraudsters, these circumstances are easily manipulated for significant benefits.

• Lax Fraud Prevention: Due to high competition and the constant drive to make sales, many e-commerce platforms to this date don't have advanced fraud detection mechanisms, making it even easier for fraudsters to exploit system vulnerabilities.

• Easier to Exploit: Online fraudsters often find it easier to create fake accounts and manipulate promotional systems that are time-limited, particularly in businesses without strong detection tools.

How to Prevent Bonus Abuse in E-Commerce

Despite the growing complexity of tactics, bonus abuse can be prevented using the right tools and strategies. The following are a few methods that can be applied to protect your e-commerce business from bonus abuse.

Employing Device Intelligence

Fraudsters often use multiple devices to carry out their fraudulent activities. By leveraging device intelligence, businesses can track fraudulent behavior tied to specific devices.

Veri-id's DiiA (Device Intelligence) technology helps businesses build unique device fingerprints, allowing for accurate identification of fraudulent users and the good ones, even if they use different accounts or IP Addresses. This technology works by collecting almost 100 data points on device attributes.

Leverage AI Risk Scoring Capabilities

AI plays a crucial role in real-time fraud detection. Veri-id adopts AI models for risk scoring and enhancing detection accuracy through user behavior analysis specific to the evolving fraud landscape, detecting suspicious activities such as abnormal account creation patterns or unusual login times.

Additionally, the AI component learns and adapts over time to spot new and growing fraud patterns, enabling businesses to detect fraud before it becomes a significant issue.

Data-Driven Decisioning

Each business may have their own risk policies and thresholds. Catering to this need, Veri-id offers an intuitive Rule Engine dedicated for businesses to set specific rules and thresholds for detecting fraud based on various metrics like IP addresses, location, or account activities and frequency.

Not only stopping at a data-driven approach, Veri-id's Customizable Scheduling Scheme allows your business to set up their own fraud detection rules based on location, device type, and other data points, offering greater flexibility in managing fraud risks and aligning with your internal risk policies.

Conclusion: It's a Long Fight Against Fraudsters

Bonus abuse is a growing problem in the e-commerce industry regardless of the region, and the costs can quickly spiral out of control. Fraudsters targeting promotional offers can cause significant losses and severely affect your marketing campaigns' results, leading to inaccurate future directions. However, with advanced fraud detection solutions like Veri-id, your online platform can effectively prevent bonus abuse for more effective and well-targeted promotional campaigns.

By leveraging device intelligence, AI-driven fraud detection, and data-driven decision-making, Veri-id ensures your business is protected from fraudulent activities.

Book a call with HiTRUST today to learn how we can help reduce bonus abuse and safeguard your e-commerce platform from online fraud.