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Pandora's coupon.

The painful and costly reality of coupon fraud on the Internet.

Consumers are increasingly comfortable about downloading and printing online coupons. But for retailers and manufacturers, user-printed coupons are a Pandora's Box-a security risk that has the potential to wreak industrywide havoc.

The dollar value of printed coupons comes to about $180 billion annually. So it's no surprise that fraud is an inherent part of the industry, ranging from an estimated $200 million to $500 million a year.

But this may only be the tip of the iceberg as CPICs (consumer printed Internet coupons) enter the mix. Online promotions in the form of coupons can be securely delivered via point-of-sale, proprietary networks, kiosks and U.S. mail. CPICs, while offering a number of benefits to consumers, pose a significant threat of fraud to retailers and manufacturers.

They work well when retailers can authenticate them at the checkout. But since they are printed on one side of a wide variety of common inexpensive paper stocks, they lack the verified security check present in newspaper-distributed coupons.

Some proponents of CPICs have suggested that the risk of fraud and reproduction of FSIs has always been present. Thus, the industry risk associated with CPICs is only a slight increase over the existing risk of coupon fraud. Unfortunately, this argument is false because the technology needed to produce fraudulent CPICs is exponentially more available than the technology necessary to duplicate FSIs.

Readily available software programs make it easy to modify the value, barcode and legal copy of CPICs, and just as easy to create counterfeit ones offered by major coupon Web sites. The latter can't be detected by checkstand personnel or by POS technology.

"Plug-ins," deployed by Internet coupon sites to control user activity, provide an easily surmountable barrier. Easy-to-use software, downloadable for free, gives millions of people the ability to modify coupons. In the future, this may be even easier through Web sites and new technology enabling them to modify legitimate Internet coupons.

And once a fraudulent coupon has been accepted by a retailer, it's even more difficult and costly to stop the user from repeating the behavior. It's simply too easy to alter the indicia that provides the tracking information. And, even if a CPIC criminal could be identified, the cost of pursuing and prosecuting fraudulent users will not be cost effective.

Even the "good" might be "bad." CPICs may cause checkstand delays due to "bad scans" caused by inconsistencies in print quality. These bad scans could result in significant increases in labor and chargebacks.

Certainly, retailers will bear the initial cost of fraudulent coupons. But they will pass costs on to manufacturers in the form of invoice deductions or higher clearing fees.

The potential for increase in coupon fraud, particularly the small-scale CPIC fraud, will undoubtedly give rise to more intra-industry disputes about financial liability.

If the industry endorses CPICs, there are few technological or cost barriers to prohibit widespread fraud. And until there's a secure solution to deliver user-printed coupons, CPICs should not be used for third-party offers that cannot be authenticated at the checkout.

Pandora's Box has already been opened. We must make an effort to discontinue the practices that contribute to the proliferation of fraud, and implement programs that capitalize on the benefits of relationship marketing on the Internet.

Bill Purcell is chief new markets officer for Transora and CEP and founder of planet U, a Transora company.
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Title Annotation:Coupons printed off Internet cause fraud
Comment:Pandora's coupon.(Coupons printed off Internet cause fraud)
Author:Purcell, Bill
Publication:Progressive Grocer
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 1, 2001
Previous Article:Lines of communication.
Next Article:Bring your own string.

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