Influencers Allege Paypal Uses Honey Extension to Steal Commissions

In January, an influencer filed a purported class-action complaint against PayPal, alleging that Honey, an extension that PayPal bought in 2020 for $4 billion, is a scam. The complaint alleges tortious interference, conversion, statutory claims sounding in deceptive business practices and unfair competition, and unjust enrichment. Honey purports to help people find online coupons for purchases. Here’s a video that summarizes the allegations against Honey. I think the twenty-three minutes are well-spent.

In order to understand the alleged scam, I have to explain, as best I can, affiliate marketing, how Honey works, and how Gen Z shops. I have a Boomer-level understanding of all of these things, so please bear with me, and make use of the comments to supplement my understanding. 

First, it seems that some influencers promote products without affiliating with the goods they market. Others seek sponsorships by vendors in exchange for affiliate status. One way to affiliate is to provide followers with discount codes, and when a consumer uses those codes, the affiliate gets a commission. Some influencers were promoting Honey, which purports to be a free service. Consumers either don’t understand and don’t care or neither understand nor care that when you sign up for free Internet services, your data is the currency in which you pay. However, while Honey actually makes its money by selling your data and by taking commissions from the affiliates who refer consumers to the vendors. 

That is the first set of allegations in the complaint. Honey steals commissions from influencers. It does so whether or not it actually finds discounts for consumers. Once you sign up for the Honey extension, it will always pop up when you make a purchase, sometimes reporting on a discount, sometimes not (right). Either way, when you click to use the coupon or click to close the box, Honey replaces the cookie that sends a commission to the affiliate with a cookie that sends the commission to Honey and thus takes the commission that otherwise would have gone to the influencer who directed you to the site. The same thing occurs if you click on the box (below left) that Honey provides reminding you that you can pay using PayPal, even though that option is already available on the vendor’s webpage.

Second, the complaint also alleges that Honey does not provide value to its users. Operating through its PayPal Rewards system, Honey takes the vast majority of that discount for itself, leaving the consumer with paltry savings which come in the form of Honey points, worth much less than the discount.

Finally, the video (above) but not the Complaint alleges that Honey does not serve its customers the way it purports to do. It claims that it finds the best discounts, so that you do not have to manually search for discounts, something I guess Gen Z knows how to do, but I sure don’t. In fact, however, Honey does not find the best discounts; it finds the discounts that the vendor wants you to see. Honey helps vendors make sales; it does not help consumers find the best deal. I assume that this is not part of the complaint because consumers, rather than influencers, would be the proper plaintiffs to bring that claim.

This is all a bit bewildering. The alleged scam has been going on for years. The complaint calls affiliate cookies “the Affiliate Marketer’s lifeblood.”  Why haven’t influencers noticed that they weren’t getting commissions or that their income from commissions delined rapidly with the advent of Honey?

From a consumer’s perspective, does this mean that you should stop using Honey? My answer is yes, because Honey does not give you very much of value, and it steals from the people you are trying to support. Moreover, PayPal bought Honey because it wanted access to your data. Now it is has it, and so long as you use Honey, especially if you have the app, PayPal is tracking your every physical and online move. I don’t know anything about the alternatives to Honey, but they exist, and Honey doesn’t even rank among the top cash-back apps, at least according to this website.

One of the reviewers who praises Honey claims to have saved $400 over two years using the App and referring readers. That’s not very impressive. It turns out $300 is from referrals. Actual savings form Honey are about $4 a month. And how much shopping is this guy doing to earn one Starbuck’s coffee a month? Moreover, the authority for these savings? The app. I am skeptical. Stores are always telling you how much you saved by shopping there, but that only proves that you may not need an app to pay less than the listed retail price, which nobody pays. In any case, it seems that the real benefits from Honey derive from being part of a Ponzi scheme. Hard pass.

Thanks to my student Brady Robison (right) who told me about the case.