Blockchain Technology Can End a Multimillion Dollar Financial Fraud

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We reside in an more and more digital world, the place know-how helps us full duties of all types all through the day. With this in thoughts, it might be straightforward to suppose that the process of scanning and processing coupons in grocery shops, eating places, malls and different stores could be one which’s streamlined with know-how. Surprisingly, this is not fairly the case.

It is nonetheless far too straightforward to create, buy, commerce and use counterfeit coupons. In recent times, there have been a number of high-profile counterfeit coupon busts orchestrated by the FBI and state police departments. Final yr, a film named “Queenpins” starring Kristen Bell and Vince Vaughn was launched, retelling the story of a counterfeit coupon operation that was damaged up by the FBI and which noticed investigators uncover greater than $25 million value of bogus coupons, 22 assault weapons, 21 automobiles, and a 40-foot boat. The rip-off that the film relies on is one which snared a roster of 40 main producers, together with Procter & Gamble, PepsiCo, and Hershey. Police estimated that a whole bunch of hundreds of thousands of {dollars} had been misplaced in income — the vast majority of which was by way of counterfeit coupons.

Although this surprising story caught the eye of Hollywood administrators, it’s not precisely a rarity. There have been different large-scale coupon fraud busts in current months, together with an incident that noticed a Virginia man sentenced to more than seven years in prison. Along with the jail sentence, he was ordered to pay $31 million in restitution in connection to what prosecutors described as “what could also be one of many largest counterfeit coupon schemes in historical past.”

The Downside With Present Know-how

Trying on the scale of the crimes talked about above, it’s clear that the present know-how used to course of coupons and confirm their authenticity merely would not lower it. Even with the shift to on-line purchasing and elevated use of digital coupons because of the pandemic, fraud has remained an enormous challenge.

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In actual fact, digital coupons might even be contributing to an increase within the variety of folks overusing coupons, as on-line retailers lengthen low cost codes to draw new buyers and encourage buyer loyalty. Whereas it’s an efficient advertising tactic, the distribution of digital coupons has a stage of threat concerned, notably if buyers abuse referral schemes to proliferate coupons or reuse them.

In 2020, a fraud detection report printed by Forter highlighted a major enhance in coupon abuse, which grew 133 p.c between H2 2018-H2 2019. This was attributed to the oversharing of coupon codes by customers and retailers that aren’t capable of put precautions in place to discourage this type of abusive conduct. On the time of the report, it was estimated that coupon fraud prices companies between $300 million and $600 million annually.

One of many issues fueling coupon abuse is the migration to cellular gadgets. Throughout the trade, the know-how and requirements carried out for coupon redemption have not been uniform. The consequence right here is that there is a fragmented and siloed coupon distribution panorama. This may be — and has been — exploited. The legacy coupon format, AI (8110), has skilled substantial ranges of fraud on account of the truth that it isn’t doable for retailers and types to trade real-time knowledge.

One other one of many the explanation why coupon abuse has confirmed to be really easy for criminals is as a result of the present course of for verifying coupons is each time consuming and labor intensive. Yearly, there are greater than 1.7 billion coupons redeemed within the U.S., with the annual client packaged items (CPG) trade spending $225 billion on promotional actions such because the distribution of coupons. Many of the coupons scanned in shops and used within the U.S. are shipped to Mexico for painstaking hand reconciliation, making a course of that is ripe for fraud.

To carry this course of into the twenty first century, we have turned to distributed ledger know-how (DLT), extra generally referred to as blockchain know-how. Put merely, DLT is a decentralized database for data and property to be saved and shared securely and in actual time, reasonably than being managed by one centralized authority. With a decentralized blockchain ledger, the blockchain protocol stays safe even when a few of the computer systems on the community act maliciously. The consequence? The information of data recorded on the blockchain are nearly tamperproof and therefore anybody can confirm data recorded in it.

Fixing the Downside With Blockchain

Given the severity of losses and prison exercise inside the coupon sector, stakeholders have begun to take motion. Teams such because the Affiliation of Coupon Professionals, the Joint Trade Coupon Council, the Client Manufacturers Affiliation, the Meals Advertising Establishment, and GS1 have labored with The Coupon Bureau to determine a Common Digital Coupon for the retail trade to boost coupon safety and cut back fraud. The Common Digital Coupon leverages Hedera Hashgraph’s DLT know-how and the Hedera Consensus Service to section out legacy coupons and exchange them with a safer various.

Utilizing this next-generation DLT means having a decentralized ledger, up to date in actual time, to immediately confirm the authenticity of coupons, which could be fully trusted. In additional element, on the middle of this common coupon customary is a single supply of fact or a “Grasp Supply File” created by producers. All stakeholders can entry the file with the intention to carry out their particular features — from distribution and validation to clearing. All knowledge related to this course of could be accessed by way of a set of standardized APIs, enabling retailers to attach, validate and retrieve supply particulars, whereas reporting to all stakeholders concerned with every coupon. By the tip of 2021, this know-how is predicted to be built-in with greater than 75 p.c of grocery retailers.

This new coupon customary is predicted to scale back coupon fraud by hundreds of thousands of {dollars} a yr. This can have a cloth influence on customers, as retailers will not have to seek out different methods to make up for the enterprise misplaced by way of coupon misuse. After all, the common coupon customary additionally has a variety of advantages for stakeholders inside the coupon trade, together with elevated effectivity, elevated accuracy, a cloth discount of fraud threat, and a discount of invoicing and settlement disputes. Total, it’s a significant step ahead for retailers and producers which have lengthy been in search of methods to eradicate coupon fraud.

Christian Hasker is the chief advertising officer at Hedera Hashgraph, a distributed ledger know-how.

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