Decentralized Coupons: Analysis of a Hedera Hashgraph Use Case

Photo by Nathália Rosa on Unsplash

The Coupon Bureau, a non-profit industry managed open marketplace platform, announced their interest in using Hedera Hashgraph technology to manage coupon activity on their platform. The Hedera Hashgraph Consensus Service (HCS) would create real time, tamper-proof logs for parties to validate coupon usage and creation.

Putting coupons on the blockchain, or Hashgraph in this case, is nothing new. Mastercard explored the idea in 2018, and several projects have been created to tackle the idea, a subset of decentralized identity. Albeit still fairly recent, few have seen traction, and none have reached public mass adoption.

The usage of HCS does improve aspects of authentication, data aggregation and standardization, but it can be argued that a traditional database can achieve the same results. However distributed ledger technology does open up fair data interoperability to the coupon supply chain, disincentivizing foul play and laying out the early groundwork to introduce further initiatives involving additional parties like consumers.

Digital Coupons and Fraud

For most of us who shop, seeking coupons for discounts is habitual using services like Honey or our favorite coupon website. Some take it even further and try to figure out the codes themselves, albeit with enough brute force one is bound to find something. While we consider it “smart shopping” and “gaming the system”, this money-saving practice can sometimes fall under fraud.

Coupon fraud is responsible for 300-600 million dollars of loss. This affects all parties involved including: retailers, whom are hit with financial loss, brands, whom lose control of campaigns, and shoppers, since there is less incentive for companies to offer coupon campaigns.

Fraud Examples:

Decoding: Applying coupons to the wrong products. Example: Using coupon for a 24 oz soda instead of 16 oz.

Modification: Changing conditions or terms of the coupon. Example: Modifying expiration date or value.

Mass Printing: Copying same coupon to use multiple times. Example: Photocopying coupon to redeem at several stores, or the same one.

Counterfeiting: Fake coupons. Example: Coupons for non-existent deals

Digital coupons are an improvement over regular paper coupons, but can suffer from unauthorized usage like sharing codes.

Using Hedera Hashgraph to Combat Fraud

The challenge addressed is that the current coupon system is broken, allowing rampant fraud, which has resulted in decreased industry usage.

Their new standard, in collaboration with the Joint Industry Coupon Council, led by companies like Target and General Mills, solves for this by using a unique combination of a singular universal network, while including the trust and transparency of a decentralized public network for transaction data capture. The Application Identifier 8112 for Coupon Data Specifications establishes a singular positive offer file for single use and retailer agnostic coupons, with the registration and redemption transaction tools built on Hedera Hashgraph.

From Hedera Hashgraph Website

The standard proposed utilizes the Hedera Consensus service as an authentication mechanism to validate coupon data and usage.

How it works:

1. Kent & Co. creates a coupon for 10% off strawberry ice cream.
2. Information regarding this coupon is sent to HCS.
3. Downstream parties (grocery stores, etc) receive information from HCS regarding coupon. Coupon is distributed.
4. Customer buys ice cream with coupon, coupon is verified against HCS data, and usage is logged.
5. Kent & Co. cancels coupon usage at Brady’s Supermarkets in California. Updated information sent to HCS.
6. Customer buys ice cream at Brady’s Supermarket, coupon is denied and information is sent to HCS .

From a supply chain perspective, it is useful for standardizing information and enabling dynamic changes across all parties.

So What Does It Do?

• Provenance and Data Aggregation
• Coupon Authentication
• Data Reconciliation

This system provides improved vision on coupon usage and the aggregated logged data can be used for business analytics in consumer trends and coupon efficacy. Companies gain metric insights of their promotional campaigns, such as demographics and conversion. The ledger through HCS ensures accurate up to date information regarding the coupon, and validation of coupon usage and authenticity. This leads to the agnostic nature of the coupon, as all parties are updated in real time, without needing to tailor coupons per party.

The major benefit gained from using HCS is data reconciliation. With time-stamped logging of all transactions, in the event of a discrepancy, can be drawn upon for evidence in resolving a dispute. The ledger becomes a dataset that can be drawn upon to identify foul play such as kickbacks.

What It Doesn’t Do

• Prevent fraudulent coupon distribution
• Prevent logging incorrect data
• Incentivize downstream parties

While this system streamlines the internal coupon supply chain, it still lacks significant impact on parties outside such as consumers. The system can deter coupon distribution by identifying usage patterns and can reactively take steps to address this by changing coupon conditions. This is still reactionary, but can be further offset with the introduction of consumer identifiers such as wallets to build even more unique coupon redemption structures.

A problem facing all blockchain/DLT solutions is oracles, the reporting of data to the ledger. While this is mainly can be attributed to external systems or human error, not necessarily foul play, it is an issue that the Coupon Bureau will need to consider in the future.

Foul play is a motivator for implementing DLT, and it is imperative in the design for all stakeholders to play fair to ensure success of the system. This requires proper incentive alignment or consensus model to eliminate malicious actions. HCS does cover the consensus and security of the data on the ledger, it lacks protection against incorrect data. From a macro perspective, the coupon system benefits the coupon creators, with little or none to the retailers/manufacturers whom have to connect their systems and share data. In this scenario, it seems a minor point, but nevertheless should be considered.

Final Thoughts

The usage of a distributed ledger is a step forward for interoperable infrastructure in the coupon industry. Could a traditional database generate similar results while being technically and financially cheaper? Yes, but it lacks the neutral core aspect which makes DLT attractive to use. This core in the future can serve as the interoperable data layer between consumer and enterprise, providing fair process for all parties involved. This can resolve the issue created in the strawberry ice cream example, in which the consumer was not notified of coupon changes.

The Coupon Bureau’s goal is to restore confidence in coupons for continued usage in the future. While this initiative is still in the early stages, it does have potential to alleviate pains facing the coupon industry today, while laying ground work for future innovation.

Disclaimer: I am not affiliated with either the Coupon Bureau or Hedera Hashgraph and the above thoughts and opinions are my own.