Why promotional fraud is increasing

Coupon, rebate, and other incentive programs continue to grow because they work. They drive acquisition, repeat purchases, and measurable lift for brands across retail and CPG. But as the scale of digital promotions expands, so does the incentive for abuse.

In 2026, the biggest shift is not just volume, it’s capability. Generative AI has made it significantly easier for bad actors to create fake identities, automate submissions, and replicate promotional workflows at scale. What used to require technical skill or coordinated effort can now be executed quickly using widely available AI tools.

How fraud is changing with AI

AI hasn’t only increased fraud activity, but it has also changed its structure.

Fraud is now:

• Faster to generate across multiple fake accounts
• More realistic in submission quality and formatting
• More difficult to separate from legitimate consumer behavior

Instead of small clusters of obvious abuse, brands are increasingly seeing distributed, high-volume submission patterns that mimic real engagement. Before AI tools became widely available, fraud might have appeared in the hundreds of submissions per campaign. Now it’s not unusual for systems to detect thousands of attempts across multiple vectors.

What impact does fraud have on brands?

Promotional fraud creates problems far beyond direct financial loss.

The most immediate impact is invalid redemption, where coupons or rebates are used without a legitimate purchase. But the larger issue is data integrity. Fraud distorts campaign performance and makes it difficult to understand whether a promotion actually drove sales or just attracted abuse. This becomes especially problematic for product launches or test-and-learn campaigns where accurate feedback is critical.

It also affects customer insight. Fake or manipulated submissions can corrupt demographic and behavioral data, which means brands may be optimizing based on inaccurate information about who their customers actually are.

Why promotional value acts like currency

Coupons, rebates, and other incentives function much like currency within the promotional ecosystem. They hold real financial value, can be traded in practice through redemption, and directly impact both consumer behavior and retailer economics.

When fraud enters this system, it’s not just a technical issue. It becomes a financial and operational risk that affects margins, campaign performance, and long-term willingness to invest in promotions. In some cases, increased fraud pressure also leads brands to add friction to validation processes, which can unintentionally impact legitimate consumers and reduce participation rates.

How we stopped large scale fraud for our client

In one recent national rebate program for a major consumer brand, we identified and prevented approximately $1.5M in potential fraud losses by deploying a layered fraud prevention framework.

The program was designed to support high-volume consumer participation while maintaining strict integrity controls. Early in the campaign, we detected coordinated submission patterns consistent with organized fraud activity, including repeated behavioral signals and inconsistent purchase data.

To address this, we implemented a multi-layer approach that combined automated detection with enhanced verification, including two-factor authentication (2FA) and real-time pattern recognition.

Key outcomes:

• Detection of a fraud ring with a near-total fraudulent submission rate
• Reduction of thousands of suspicious entries to a small fraction requiring final review
• Over 80% reduction in fraud activity following 2FA implementation
• Prevention of approximately $1.5M in rebate leakage

This allowed the brand to maintain a frictionless rebate experience for legitimate consumers while stopping large-scale abuse before it impacted program budgets or data integrity.

How do brands prevent AI-driven fraud?

Fraud prevention today relies on a layered defense rather than any single control. The most effective programs combine multiple strategies, including:

• Behavioral pattern detection to identify unusual redemption activity
• Device and IP tracking to flag repeated or coordinated abuse
• Validation rules that adjust based on risk signals
• Human review for edge cases and anomalous submissions

The main shift is that fraud detection is no longer reactive. It needs to be continuous and adaptive as new patterns emerge.

Can technology alone stop promotional fraud?

Technology is essential, but it’s not sufficient on its own. The same AI tools that help brands improve marketing performance are also enabling fraud at scale. This creates a constant arms race between detection systems and the abuse methods.

Because of this, effective fraud prevention also depends on:

• Experienced review teams who understand emerging fraud patterns
• Constant updates to rules and thresholds
• Industry collaboration to identify new tactics early
• Shared standards that reduce fragmentation across platforms

Fraud prevention has become an operational discipline, not just a technical layer.

New standards are emerging in coupon security

The promotions industry is actively working toward more secure validation models. One of the most important developments is the movement toward standardized and verifiable digital coupon formats that create a unique, traceable data footprint at the point of use. Once validated and redeemed, these codes cannot be reused or duplicated, which significantly reduces opportunities for replication or counterfeit generation.

Industry groups such as the Association of Coupon and Promotions (ACP), where we participate in leadership efforts, are helping drive adoption across retailers and brands to strengthen consistency and security.

Why industry collaboration is becoming more important than ever

No single brand can fully address AI-driven fraud alone.

Fraud tactics evolve quickly, and they often span multiple platforms, retailers, and redemption environments. That makes shared knowledge and industry alignment vital.

Stronger collaboration helps:

• Identify emerging fraud patterns faster
• Improve consistency in validation standards
• Reduce gaps that fraudsters can exploit
• Build more resilient promotional ecosystems

Should lawmakers be involved in promotional fraud prevention?

Absolutely, because the scale and sophistication of fraud is now exceeding traditional enforcement frameworks.

AI-driven fraud can be large-scale, distributed, and financially material, especially when it targets national promotional programs. As a result, there is growing recognition that clearer legal definitions and stronger enforcement mechanisms may be needed to reflect the real economic impact on brands and retailers.

What brands should focus on moving forward

Brands that want to stay ahead of fraud need to treat it as part of their core promotional strategy and not a downstream issue. The most effective approach is to build security into promotions from the start rather than trying to layer it on after launch.

That typically means:

• Designing promotions with fraud resistance built in
• Using layered validation and monitoring systems
• Partnering with experienced promotion providers
• Staying aligned with evolving industry standards and best practices

Fraud is no longer a marginal risk in promotions. It’s now a defining factor in how scalable and sustainable promotional programs can be in a digital-first, AI-driven environment.