Modern Coupon Fraud: How AI Is Changing the Game for Promotional Scammers

While coupons are a critical competitive advantage for countless brands in a wide range of industries, they also come with massive headaches for marketers. From regional regulations to distribution and redemption tracking to the sheer expense of production…and then there’s the fraud.

Once upon a time, coupon fraud was a low-tech scam involving forged paper coupons or minor manipulations of digital ones. But even at that, coupon fraud could cost companies significant money. (In one case, one single fraudster scammed companies out of a whopping $32 million with bogus coupons.)

And that was before AI.

With artificial intelligence so readily available, innovative fraudsters can step up their game dramatically using large language models to generate countless fake identities and accounts that can do any of the following:

• Sign up for loyalty programs and redeem rewards through falsified receipts or proofs of purchase
• Purchase discounted goods with counterfeit coupons (stacked, of course, for the steepest possible discounts) to be resold at a higher price later
• Claim unearned rebates over and over and over again, draining the business of its cash

When you consider that coupon fraud used to be more or less limited to altering barcodes and photocopying coupons, the scale AI enables is enough to make your head spin.

Who’s at risk for AI-driven coupon fraud?

For the alcohol and beverage industry, where coupons and promos are staples for customer engagement — and where legal regulations make coupon distribution a high-stakes initiative — these AI-driven fraud techniques are particularly concerning. However, the threat extends beyond beverages. Here are a few other industries that are also at risk:

• Retail and eCommerce: Digital-first brands thrive on discounts to attract and reengage customers, but that makes them especially vulnerable at the point-of-sale level. Common scams include fake promo code redemptions, fraudulent returns and exchanges, and manipulated purchase histories — all amplified by AI.
• Consumer Packaged Goods (CPG): Scammers can use AI to exponentially increase the number of fake rebate claims they submit to CPG companies and their abuses of cashback or reward offers through counterfeit purchase evidence.
• Healthcare: This high-dollar industry is ripe for fraud, and as a result, discount programs, patient assistance initiatives, and loyalty systems are prime targets for fake claims. Complicating matters more, these programs are generally designed to minimize barriers and boost access for patients in need, which tends to lead to decreased oversight and larger loopholes for fraud.

Why does coupon fraud matter?

The most obvious ramification of coupon fraud is financial loss, and that loss grows exponentially when AI comes into play. But the impact on businesses reaches farther than that. Coupon fraud skews the promotional data brands rely on to measure the success of campaigns, making it more difficult to accurately track customer behavior and develop new products, services, and campaigns accordingly. Further, coupon fraud dilutes brand reputations and jeopardizes customer trust, costing opportunities as well as cash.

For the A&B industry, the stakes are even higher. Tight margins mean even minor fraud dramatically reduce profits. Furthermore, regulatory requirements in alcohol sales — and in healthcare, too, for that matter — add even more complexity and risk, as brands have to navigate compliance while preventing promo abuse.

How can businesses prevent AI-driven coupon fraud?

While there is no foolproof method to eliminate coupon fraud, businesses can take proactive steps to mitigate risks:

1. Choose the right coupon management partner: Collaborate with platforms that will work with you to detect and prevent fraud — both AI-driven and the old-fashioned kind.
2. Strengthen Internal Controls: Regularly audit promotional campaigns to identify suspicious patterns before they take off.
3. Educate Employees and Customers: Raise awareness about common fraud tactics to help staff and customers identify red flags.
4. Stay Updated on AI Trends: As AI evolves, so will the tactics available for promo abuse. Strive to keep up with emerging technologies, and adapt your strategies accordingly.

As AI tools become more sophisticated, fraudsters are finding new and creative ways to exploit promotional systems across industries. From fake identities to counterfeit proofs of purchase and sky-high coupon stacks, the impact of these schemes is significant: lost revenue, damaged brand trust, and compromised customer experiences.

While AI opens the door for expanded coupon fraud, the reality is that coupons are still an essential piece of the customer engagement puzzle — and the good news is that all is not lost. Businesses that stay proactive and informed about AI-driven promo abuse can protect their promotions, preserve customer trust, and maintain the integrity of their promotional campaigns. Choosing the right partners and implementing the right protection systems is the first step to keeping your brand resilient in the face of these growing threats.