Who Can You Trust? Here are 10 Tips & Tricks to Protect Your Business From Affiliate Fraud
Affiliate marketing describes a body of digital advertising tactics by which one company or individual (the “affiliate," or “publisher”) uses its website to recommend the products or services of another company (the “advertiser"). The hope is that users of the affiliate site will click directly over to the advertiser’s site. Then, when traffic driven by the affiliate converts, the affiliate earns a commission.
It's a reciprocal relationship that benefits everyone in the process. Affiliates gain commissions, advertisers sell more products, and consumers get the goods they want:
Nobody would complain if affiliate marketing always worked this way in real life. Unfortunately, there are a few loopholes in the system that fraudsters can exploit.
Affiliate fraud is an established — but growing — problem for businesses that advertise online. While affiliate marketing is an excellent, self-sustaining way to build a revenue stream, there are bad actors who want to take advantage of your hard work for their own personal profit.
So, what can you do to take advantage of affiliate marketing without falling prey to scammers? Let’s take a look.
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What is Affiliate Fraud?
- Affiliate Fraud
Affiliate fraud refers to a broad category of illicit or unscrupulous tactics designed to generate unearned commissions from an advertiser’s affiliate marketing program.
[noun]/ə • fil • e • ət • frôd/Affiliate fraud can be any deliberate attempt to make illegitimate money off an advertiser's affiliate marketing efforts. It's similar to triangulation fraud in that it involves fraudsters using stolen data or misleading information to middleman a transaction. We’ll get into the specifics of how this is done below.
Affiliate marketing fraud is big business. Industry experts report that these scams are on the same level as identity theft and friendly fraud in terms of potential financial impact. Recent studies forecast that, by 2024, total losses for digital advertisers due to fraud will reach an alarming $120 billion.
This suggests that nearly 29% of digital advertising expenditures might potentially end up benefiting criminals instead of legitimate businesses. And, according to the latest data from consumer research firm Statista, digital advertisers invested over $412.93 billion in 2022.
How Does Affiliate Fraud Work?
Affiliate fraud typically falls into one of two categories. First, the fraudster may employ deceptive tactics to persuade a cardholder to make a purchase. Or, they might use stolen information to submit fraudulent transactions. In either instance, the cardholder may then file a chargeback to recover their lost funds.
Affiliate fraud can take several forms, depending on your payment model. It may target you via:
Cost-Per-Acquisition (CPA)
The affiliate is paid when a sale is completed. Large CPA companies like MoneySuperMarket and TripAdvisor are prime examples. Fraudsters use stolen IDs and credit card numbers to complete fake transactions, often employing bots to automate the process. This can result in significant chargeback fees for your business.
Cost-Per-Lead (CPL)
The affiliate is paid upon a completed registration form, newsletter subscription, or submission of accurate user data. Dishonest affiliates may provide poor customer data, utilize bots to complete forms, or provide “opt-out” lists instead of “opt-in” ones.
Cost-Per-Click (CPC)
Affiliates earn a fee based on the number of ad clicks. Fraudsters use bots to automate clicks and devise methods to direct unwitting users toward clickable links.
Cost-Per-Impression (CPM)
The “M” stands for “Mille,” referring to every thousand impressions. Fraudsters create fake websites and use bots to inflate ad view figures, or layer multiple ads to count as impressions.
Influencer Model
Online personalities with a large audience are offered freebies. Fraudsters, however, unscrupulously create fake accounts and inflate their numbers using bot views and comments. A whole industry dedicated to social profile boosting exists for this purpose.
By the time the fraud is detected, the affiliate has typically cashed the commission check and vanished. This leaves you responsible for the lost commission, the lost product or service, and any chargeback fees resulting from their scam.
Furthermore, your reputation with banks and clients suffers as your chargeback ratio rises. This may drive card processing rates higher over time, or even eliminate your processing capabilities altogether.
Common Affiliate Marketing Fraud Tactics
Much of the affiliate marketing process is automated, saving time and effort for all parties. This lack of direct human oversight, however, gives fraudsters opportunities to hijack the operation and twist it to their own ends. They accomplish this through ad fraud, as well as a variety of specific tactics:
This is not an exhaustive list. There are plenty of other tactics that fraudsters can use to commit affiliate fraud. Plus, the more time that goes by once you discover fraudulent tactics, the more you lose.
We’ve compiled a list of the most-common affiliate fraud red flags, which you should be on alert for. Check it out below:
Learn about affiliate fraud red flags
Why Are Affiliate Programs Vulnerable to Fraud?
So, why exactly are scammers so intent on attacking your ad campaigns?
Affiliate programs can be particularly susceptible to fraud for several reasons, including the anonymity of the internet and the challenges associated with authentication. After all, scammers can spoof realistic-looking profiles by sourcing real people's headshots and names from social media platforms like Facebook. They can also use social media botnets to build a fake following, making the profile appear more genuine.
Additionally, fraudsters can purchase content on platforms like Fiverr to establish a convincing presence as an emerging social media influencer. This can help them better deceive businesses looking to partner with genuine influencers.
One issue we're currently facing is an affiliate who is also a direct partner with our client. They drive more traffic via the affiliate channel but have a lower payout on the affiliate program. In an effort to get the most ROI, this affiliate is redirecting its traffic to the hard-coded partner landing pages for essentially a higher payout.
How about fraudulent affiliates who post fake job opportunities on Craigslist? They ask a potential job seeker to, ‘Call and pretend to be a real customer. Stay on the phone for at least three minutes.’ The fraudulent publisher says that this call is part of the interview process and that if the job seeker does a good job, they will be called in for an interview,' which never happens, of course. It's all just a way of simulating traffic.
On one program, a certain affiliate seemed to be consistently performing at a small but steady level. However, upon reviewing the daily timing of his activity, it turned out that he was hand-entering the leads into our program and our competitor’s programs as well. To keep his conversion rate realistic, he generated clicks during his coffee breaks while working his day job.
We had a publisher who was stacking several campaigns and serving each one to the same user. We determined that multiple leads were coming from the same affiliate on different campaigns using an identical timestamp. Identifying this issue quickly allowed us to pause the affiliate, notify all advertisers who were impacted, and offer a full refund for media spend.
You don’t typically have face-to-face interactions or specialized expertise in detecting social media bot fraud. So, it’s hard for businesses to verify the authenticity of an affiliate account holder.
Beyond these issues, many affiliate programs receive a high volume of applicants, which can strain their vetting process. The larger the program, the less time and resources there are to scrutinize every account individually. As a result, fraudsters can exploit this lack of thorough vetting to slip through the cracks and become part of the program.
How Affiliate Fraud Impacts Businesses
So, just how bad is affiliate fraud for your business? Unfortunately, the harmful effects of affiliate fraud extend beyond the immediate consequence of paying out an unearned commission. Affiliate scams can impact your business on multiple levels:
Affiliate fraud can tarnish a brand's image, leading to long-term consequences. Negative experiences with fraudulent affiliates might cause customers to associate the brand with deceitful practices, ultimately diminishing brand value and credibility.
Businesses may lose their competitive edge as affiliate fraud erodes marketing ROI and consumes resources that could be better spent on growth initiatives. Competitors with more effective affiliate marketing programs can capitalize on this opportunity to gain a larger market share.
The number of genuine leads decreases due to affiliate fraud as the cost of acquiring new customers increases. This higher customer acquisition cost can strain marketing budgets and negatively affect overall profitability.
You need to invest in robust fraud detection and prevention measures to stop affiliate fraud in its tracks. You must also continuously monitor your affiliate programs to ensure they maintain their effectiveness and credibility.
At the moment, the biggest challenge in fraud mitigation is ad placement fraud. First, ads aren’t seen because they're in that 1x1 iframe that's virtually invisible to the user. Second, the publisher can render one ad viewable but create a script where multiple, invisible-to-the-eye ads are triggered simultaneously. It’s challenging to identify fraud. Because iframe technology doesn’t easily allow for traffic source identification, it’s difficult to trace.
Honestly, sometimes the biggest challenge of mitigating affiliate fraud is proving it. There are several factors that will raise a red flag: short call durations is an obvious one. Affiliates who convert much higher than others with the same offers are another. Seeing the same caller IDs appearing in several different offers from the same affiliate is a clear eye-brow raiser! Once you recognize suspicious trends, having 2-3 team members dedicated to compliance and listening to calls all day usually finds fraud quickly.
I feel like the biggest challenge is the adaptation of new technologies. It's gotten to the point where each time I see a new functionality announced, my first thought is, ‘How can this be twisted by a fraudster to scam a merchant?’
10 Tips to Prevent Affiliate Fraud
There's a fine line between eCommerce conversion optimization and being too lenient on fraud. That's why effective fraud management demands a multilayer approach.
Remember that fraudsters are cunning; they change tactics as soon as they realize their efforts might be detected. You need to be just as agile and innovative. You can’t deploy just one or two tools and call it a day.
Here are ten tools, tactics, and best practices you can deploy to fight back against affiliate marketing fraud:
#1 | Manually Vet Affiliate
Before approving new affiliates, perform a thorough background check. Look for red flags like suspicious website domains, questionable email addresses, and unconvincing social media profiles. Verify the authenticity of their websites and content.
#2 | Affiliate Monitoring Software
Implement affiliate monitoring software like Affise, Voluum, or Post Affiliate Pro to track and analyze affiliate activities. These tools help you monitor traffic sources, conversion rates, and other vital metrics to identify anomalies that may signal fraudulent activity.
#3 | Real-Time Fraud Detection
Use real-time fraud detection tools like FraudScore, Fraudlogix, or 24metrics to analyze traffic patterns and identify suspicious activities. These platforms use machine learning algorithms to detect fraudulent activities as they happen and provide actionable insights to prevent further damage.
#4 | Multi-Touch Attribution
Employ multi-touch attribution models to track and attribute conversions to the appropriate affiliate, ensuring that credit is fairly distributed. This approach helps prevent fraudsters from claiming credit for leads they did not generate.
#5 | Two-Factor Authentication (2FA)
Implement 2FA for all affiliates to enhance account security and protect against unauthorized access. This additional layer of security ensures that only genuine affiliates can access their accounts and receive payments.
#6 | Secure Cookie Tracking
Use secure cookie tracking methods, such as first-party cookies or fingerprinting, to prevent cookie stuffing and other fraudulent techniques. This helps ensure that affiliates are accurately credited for their leads and conversions.
#7 | Regular Auditing
Conduct regular audits of your affiliate program to monitor performance, track changes, and identify potential fraud. By staying proactive and reviewing your program's data, you can detect and address any fraudulent activities before they escalate.
#8 | Clear Terms & Conditions
Establish clear and comprehensive terms and conditions for your affiliate program. Make sure all affiliates understand the rules, prohibited practices, and consequences of violating these guidelines. This clarity can help deter fraudsters from attempting to exploit your program.
#9 | Affiliate Monitoring Software
Provide resources and training for your affiliates to help them understand the risks of fraud and how to prevent it. By creating a knowledgeable community of affiliates, you encourage a culture of vigilance and collaboration in fighting fraud.
#10 | Communication & Transparency
Foster open communication channels between you and your affiliates. Encourage them to report any suspicious activities or concerns. By maintaining transparency and building trust, you create a stronger defense against fraud.
I think my best advice for fraud mitigation is to always keep looking. Fraud doesn’t show itself in just the bad events, but also good ones. Most marketers will see their brand down by a certain percentage, freak out, and look everywhere for fraud. But when their campaign is a certain percentage up, they sit back and assume there is no fraud at all and the increase is attributed solely to their hard work.
BONUS TIP: Ask an Expert
Implementing the practices outlined above can help you minimize the risk of affiliate fraud, protect your business, and ensure the success of your affiliate marketing program.
That said, the key to preventing affiliate fraud while also addressing post-transactional threats like first-party fraud is to minimize risk without sacrificing revenue potential. This calls for the right combination of tools and services.
Your insights are limited to the data points you generate. Without access to broader, more comprehensive data, it can be hard to pinpoint behavioral patterns and detect new and developing trends.
'Affiliate Fraud Shield™ from Chargebacks911® has a proven track record of helping merchants prevent affiliate fraud. This exclusive tool allows you to prevent abuse while minimizing costs such as shipping, loss of product, and chargeback fees. Let us show you how much ROI you can expect from this revolutionary solution.
FAQs
What is an example of affiliate fraud?
IP spoofing – creating fake IP addresses to hide the sender’s identity – is one common example of affiliate fraud. Sometimes affiliates secretly click links on their own sites to artificially inflate traffic driven to an advertiser’s site.
How does affiliate fraud work?
Affiliate fraud typically falls into one of two categories: either the fraudster employs deceptive tactics to persuade a cardholder to make a purchase, or uses stolen information to submit fraudulent transactions. In either case, the goal is to trick the advertiser into paying out commissions that the “affiliate” did not actually earn.
What is affiliate abuse?
“Affiliate abuse” is another term for affiliate fraud.
What are red flags for affiliate marketing?
Higher-than-average sales, elevated chargebacks, leads you can’t trace, and suspicious IP addresses can all be signs of affiliate fraud.
