It’s a general concept in business: Fraud needs to be prevented at all costs.Well, in this section we bust that myth and answer – Do I need to prevent all fraud in my referral program?
Hi, welcome to another session on customer referral programs. Today we want to talk about whether you need to prevent all fraud. This seems like a little bit of a strange point, but not all fraud is bad, just because they’re finding ways around the intended system, doesn’t mean that we necessarily have to shut down those ways.
Awareness of Fraudulent Behavior
There’s a major online retailer who we’ll leave nameless that actually knows about million dollars of fraud occurring on their service each year. Often they’re very aware of the ways fraud can happen and what they’ll do is they’ll put in systems that measure the cost of that fraud versus the increased revenue that occurs due to that fraud hole being open and only when the right balance is struck, they’ll actually patch it.
Is Some Fraud Okay?
This brings up an interesting concept as some fraud is actually better for your business. Now, how does that work? It’s a really simple formula. If the cost of fraud is in your favor, ie. you’re actually profiting, then we’ll allow it. As soon as it crosses the line, we’re going to shut it down. If you imagine you have a loophole in your customer referral program where people can get an extra 10% without having to put in an email address lets say, now you can lock that down, you have to authenticate with facebook, or you have to do something a little harder to prove who you are to get that referral. But, once we do that, as we learned about in an earlier session, we might be drastically increasing the friction, and by increasing the friction we might reduce the number of people who do referrals in general.
What can you do?
Instead of just shutting down this loophole you might know of, you need to look at the whole story, and understand is the revenue generated by this loophole, potentially in this case, less friction, is actually larger than the cost of those who are maliciously using it. If you’re measuring those two numbers, you understand if it’s worth shutting down the loophole, or worth leaving it open. You can keep tracking this until one day the scales tip and then you go in and put your patch in.
It’s just to stay, don’t think you have to stop all fraud, some of it’s good for business oddly enough. Really keep an eye on it, because then when it does cross the line, you can easily put the patch in. That wraps up our talk on if you have to stop all fraud.