7 Crucial Referral Fraud Prevention Tips

by Grace Miller |

7 Crucial Referral Fraud Prevention Tips

Digital fraud is a growing concern for all types of businesses and consumers, and marketers are no exception. If you’re working on any kind of program that rewards users for participating, you should keep reading. If you’re rewarding your customer base for doing things like connecting on social, writing reviews, referring friends, sharing photos, and so on, then you should definitely keep reading. The strategies and capabilities we’re about to discuss apply to referral fraud more specifically, but are still relevant to other customer loyalty and advocate marketing programs.

Before we dive into referral fraud prevention best practices, we need to define fraud first. It will vary for each business and its marketing programs, but for the average client using some sort of incentivized sharing or referral solution, fraud consists of the following scenarios and potentially more:

  • A user attempting to refer him/herself in order to get rewards
  • A user using bots to get rewards
  • An existing user attempting to get a discount meant for first-time customers only

In Annex Cloud’s system, there are three main actions that you can take when it comes to your fraud dashboard.

  • You can flag a suspicious referral
  • You can outright block a referral attempt
  • You can also exclude certain email addresses, domain names, or IP addresses from being blocked–in other words, let these users bypass your security settings

That said, let’s take a look at the most important ways of preventing referral fraud.

1. Prevent Referral Fraud with Cookies

This is a common fraud prevention tactic that’s worth spelling out. Let’s say that your business rewards customers with loyalty points when they successfully refer a friend, who in turn gets 15%, to purchase–just like Bebe does.

bebe raf mobile mockup

If the referrer chooses to share via social media or with a personal invite link, it’s a best practice to block any attempts to redeem that referral that happen on the same computer within the same cookie session. In other words, if a shopper copies her own personal invite link into her browser and tries to redeem her own referral, she’ll be blocked because of how we use these cookies. Your Sharing and Referral solution should have capabilities to easily implement this standard referral fraud prevention best practice.

2. Personal Data is Your Referral Fraud Friend

Personal data is an excellent secondary layer to your referral security. Email is the most standard form of data when it comes to this. Of course, it’s a no-brainer to block a referral attempt if the referrer and the referee have the same email address. There are also other ways to use email data, though. We recommend flagging referrals in which the referrer and the referee have similar email addresses, for example.

3. Use the Power of IP Addresses

IP address blocking is useful if you find lots of referral attempts coming from one area. It’s a common enough scenario that one person will share a perfectly legitimate referral link with her coworker (or roommate, or family member, etc.)–who sits 10 feet away and is on the same IP address–who then makes his own purchase. It’s somewhat uncommon, though, for this scenario to happen multiple times.

That’s why we recommend  flagging multiple referral attempts occurring from the same IP address. We usually recommend allowing 3-5 referrals before marking anything as suspicious, but you can always choose your own threshold. You can also set up multiple thresholds–for example, you can flag anything over 3 attempts, and resort to outright blocking once 5 attempts occur.

fraud dash slide 1

4. Conquer the Bots

The last main way of preventing referral fraud relies on detecting abnormal referral activity. We frame this as a user generating X successful referrals within X timeframe. If your referral goal is clicks to the site–not purchases–your fraud timeframe may be hours. If the goal is purchases, then you’ll likely be looking at a longer period of time. These types of referral attempts–particularly ones related to clicks to the site–are usually related to bots. We always recommend setting up a two-tiered security layer when it comes to them: depending on standard referral traffic, flag referral attempts above a certain threshold with your designated timeframe. Then, if the referrals reach a secondary, higher threshold, outright block them.

5. Consider Your Exclusions

With all these different ways to block referral fraud attempts, you now have to consider who you may want to bypass your rules. Ask yourself questions like these:

  • Do you work with any bloggers or influencers who will generate an abornally high–but still valid–amount of referrals?
  • Do you want to let your employees use the refer a friend program?
  • Do you want to grant your employees special privileges, like the ability to refer more friends?
  • Do you have an affiliate program that you want to work into the referral program, or will it affect the referral program in some way?

Once you’ve decided who should be exempt from different fraud measures, you can add them to an exclusion list, either by email address, domain name, or IP address.

6. Delay Gratification

Everyone likes an instant reward, and we always want to capitalize on customers’ excitement about your business. However, in order to prevent referral fraud, it’s a best practice to not reward the original referrer until the referee’s order has been shipped. This way, you won’t have to deal with shoppers trying to game the system by placing an order and canceling it before it ships. Additionally, if the referee returns their order, there must be a provision in place to deduct the credit from the referrer.

7. Block Existing Account Holders

Lastly, we have this important referral fraud measure that is so basic that it might be overlooked. Referral programs are largely designed to acquire new customers. Consequently, you should block existing account-holders from using a referral discount. They should be encouraged to refer friends, but they shouldn’t be able to benefit from the extra incentive to purchase.

If you’re interested in more information about Refer a Friend, take a look at our best practices white paper, “The Step by Step Guide for a Powerful Referral Program!” And take a look at the power of Sharing and Referrals and Social Login in our case study with Vivobarefoot–they’re seeing a 10:1 ROI and a 38% increase in orders!

[White Paper]
[White Paper]