Fraud Prevention

What is Bonus Abuse Fraud?

September, 1, 20204 min Read

Bonus abuse fraud is when fraudsters create multiple accounts to claim promotions run by businesses. Sign-up offers are used to attract new customers, but unfortunately attract the eye of fraudsters as well.  

As competition for the consumer dollar heats up, many businesses rely on bonuses or special promotions to entice new customers. These, however, are also prime targets for bonus abuse fraud due to the high monetization potential.

Bonus abuse is seen across many different industries

As more consumers spend their time at home due to the coronavirus pandemic, there has been an overall increase in all online activities. While businesses are seeing more new customers every day, bonus abuse fraud has become prevalent in many industries, including online gaming, streaming services, fintech, and more.

New Product and Promo Abuse in Online Gaming: As online gaming has exploded in popularity so too have “microtransactions” within games. These are typically item upgrades, character power-ups, or new “skins” that players can purchase for a small fee. As a way to entice new customers, many online gaming platforms offer one of these types of items for new users. Fraudsters create new accounts en masse and re-sell these digital goodies for real money to gamers on gaming auction platforms. 

Bonus Abuse in Online Gambling and Betting: Online betting and gambling operators often offer sign-on bonuses as a way to entice new customers. Fraudsters sign up en masse to either collect these bonuses, run collusive play, dump chips or increase their winning chances. This is done through arbitrage by placing multiple bets using the bonus.

New User Bonus in Tech Platforms: Many tech platforms offer sign-up bonuses to customers that can be redeemed against future usage.  Fraudsters often abuse these promotions by creating accounts at scale. Then, the bonus is used on the platform as an enabler to downstream fraud.

Streaming Service Free Trial Abuse:  The rise in popularity in video streaming services, and associated costs have led to many people looking at creative ways to get them for free. This can range from a fraudster avoiding paying for the services by continually signing up for the free trials to using different accounts as an organized fraud operation to re-sell these “subscriptions” at a discounted rate in other regions. 

Coupon Fraud in Retail: There are numerous ways that professional fraudsters and regular consumers alike can abuse coupons. These include so-called “decoding” where the coupon is used for an item or service beyond what was originally intended. Counterfeiting and making multiple copies of coupons or reselling coupons is also on the rise. Coupon abuse rose 10% in 2019, and costs businesses billions annually.

Referral Bonus in Fintech:  This is another customer acquisition tactic that is frequently abused by fraudsters. Take this scenario common with robo advisor firms: many offer a free share of stock in a random company for every friend a user refers that becomes a customer. Fraudsters create large quantities of fake new accounts as a method to gain stock shares in companies without having to spend any money. 

Laundering Stolen Money in Online Gambling: Fraudsters also use online gambling sites to collude with one another. By sitting on the same table and one player purposely losing to another repeatedly, fraudsters effectively launder money using the platform. Digital, peer-to-peer payments apps -- that typically offer instant sending and receiving of funds -- are also used for bonus abuse purposes. 

Limited Edition Items in Speciality Retail: Retailers often use limited-edition items to drive customer loyalty. A sneaker company may offer customers who have downloaded their app and signed up for a rewards program the first crack at a limited edition shoe. Fraudsters use this opportunity, via bots or sweatshops. They use multiple accounts to acquire a large number of limited items. These can then be re-sold for a massive profit. 

The New Account Fraud and Abuse Continuum 

One common thread in the bonus abuse examples listed above is that many of them could be committed by a normally law-abiding individual looking to play the system. Just as they could by organized fraud rings and professional fraudsters. This highlights a key issue that plays out across all new account registration fraud prevention efforts. Differentiating between users and fraudsters is no longer a black and white issue. 

Arkose Labs Helps a Cloud Communications Platform Stop Bonus Abuse 

Using the Arkose Labs platform the company was able to identify suspicious traffic and use adaptive step-up challenges to sap the fraudsters’ efficiency in creating fake accounts without impacting good user experience.

To learn about how our solutions eliminated fraudulent new account originations and prevented downstream fraud and abuse, download the API Solution brief.