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Prevent Affiliate Fraud

Prevent Affiliate Fraud

Learn How to Identify and Prevent Affiliate Fraud

Affiliate marketing can be a great way to build a revenue stream. However, there are plenty of crooks out there who want more for less. An estimated 2% of all performance-driven transactions are thought to be cases of affiliate fraud.

affiliate fraud shield

These transactions saddle merchants with measurable financial losses, mostly from paying unearned commissions. That’s bad on its own, but the problem is compounded when you factor in chargebacks.

Affiliate fraud drives chargeback volume, more than doubling merchant revenue losses and causing long-term stress for businesses. So exactly what is affiliate fraud? Is there a way to spot—or better yet prevent—this costly business risk? Let's start with a look at the process itself.

What Is Affiliate Marketing?

What Is Affiliate Marketing

In general terms, affiliate marketing is where one company or individual (the “affiliate," or “publisher”) uses its website to recommend the products or services of another company (the “advertiser") to potential customers. In return, the advertising company pays a commission on any sales (or sometimes just leads) that come from the affiliate's site.

Affiliate marketing often gets a bad rap. People hear the horror stories about merchants paying high dollar for non-existent leads. It would be wrong, however, to assume all affiliate marketing is bad; in fact, many merchants find affiliate marketing to be a viable, easy option for increased profitability.

Affiliate marketing is already a major revenue source in the eCommerce environment, and experts say the potential is still largely untapped. US retailers spent roughly $4.7 billion on affiliate marketing in 2016, and that number will increase to some $6.8 billion by 2020.

If it always worked just as advertised, most people wouldn't complain. Unfortunately, there are a few loopholes in the system that fraudsters can exploit.

What Is Affiliate Fraud?

Affiliate fraud is any deliberate attempt to make illegitimate money off an advertiser's affiliate marketing. Fraud experts report affiliate fraud is one of the costliest threats out there for eCommerce businesses, rivaling identity theft and friendly fraud in terms of potential impact.

Much of the affiliate marketing process is automated, saving time and effort for all parties. The lack of direct human oversight, however, presents fraudsters with opportunities to hijack the proceedings, which they can do through a variety of methods:

Adware

Programs such as spyware, pop-ups, or pop-unders secretly installed on users’ computers without their permission or knowledge. These programs are used to artificially inflate traffic figures reported to an advertiser.

Cookie Stuffing

The affiliate loads cookies onto the user’s computer simply because the user visited the site. After that, the affiliate scores a commission for potential future purchases, whether the user clicked the affiliate link or not.

Domain Squatting

The fraudster takes a successful merchant site, then registers multiple similar domains with minor changes. Users reach the site through a typo and see a page that looks genuine and which directs them to the real site…along with a cookie that credits the bogus affiliate with any sales.

ip Spoofing

The attacker creates a fake IP address to hide the sender’s identity. This could allow affiliates to artificially inflate the traffic they drive to an advertiser’s site by repeatedly clicking links on their own sites.

iframe

The fraudster includes a 1-pixel square iFrame script in an ad. When users view the page, another (hidden) link is loaded through the pixel. The user never sees the ad—it's too small—but the advertiser will still be charged for the impression.

postback

A method of directing and tracking conversion data. If fraudsters can obtain the transaction ID and address for approval, they can attempt to bypass the actual advertiser and claim commissions for conversions that never happened.

discount codes

Users may click through to an advertiser from an honest affiliate, then leave to search for a discount code prior to checkout. The dishonest affiliate who provides the coupon drops a cookie on the user's browser, giving them credit for the sale.

The Threat is Real

To gain more knowledge of real-life affiliate fraud scenarios, we talked to a panel of experts, asking for examples of tactics fraudsters were currently using:

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.

Dan Thomas Syzygy NYC

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.

Liza Schubert Astoria Company

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.

Jeannine Crooks Affiliate Window

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.

Jordan Cunningham Nadalin MUNDOmedia

The topic of conversation in most affiliate fraud discussions is unearned commissions. Merchants are compensating unsavory affiliates for fraudulent efforts.

While commission losses are reason enough to fight back against affiliate fraud, the threat is two-fold, as purchases based on fraudulent data often lead to chargebacks. Merchants can even receive chargebacks from consumers whose stolen card data is used to make commissioned purchases.

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Of course, by the time the fraud is discovered, the affiliate will have already cashed the commission check and disappeared. That leaves the targeted merchant holding the bag for the lost commission, the lost product or service, and the chargeback fees. Plus, we can’t forget the hit merchant take to their reputation with both banks and clients.

The merchant’s chargeback ratio rises as well, potentially driving processing rates higher…or even shutting down a merchant’s processing ability altogether.

Identifying Affiliate Fraud

The best way to spot affiliate fraud is to view every single payment at the transaction level and make a concentrated effort to identify where the transaction originated. Of course, that’s easier said than done; manual reviews are an extremely time-consuming and tedious endeavor. For most businesses, it’s simply unrealistic.

Mitigation can be a real challenge because affiliate fraud tactics are so dynamic. Our panel of experts also shared the issues they deal with on a daily basis, from identifying fraud red flags to proving an affiliate is actually a fraudster in disguise:

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.

Dan Thomas Syzygy NYC

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 is 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.

Liza Schubert Astoria Company

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.

Anton Konnov Adcash

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?

Jeannine Crooks Affiliate Window

The performance marketing industry is expected to continue expanding to offer increased capability: looking beyond mere point-and-click connections, marketers are leveraging more accurate metrics, more robust technology, and real-time analytics to enable advertisers to generate consistent, reliable year-over-year growth.

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But as fast as legitimate techniques are being perfected, advertisers always seem to be a step behind. One of the most devastating characteristics of affiliate fraud is that tactics evolve at lightning speeds. When one method of gaming the system is detected and blocked, fraudsters will simply create a new strategy. Again, our experts:

I'm worried about incentivized real users, where an entire community of users crawl websites and applications to trigger conversions, such as static and video impressions. They're similar to click farms, but these groups are harder to track because they don’t leave conspicuous fingerprints—their pattern appears natural.

Anton Konnov Adcash

I expect to see continuous issues of extensive re-brokering within the CPA realm, with offers shared 5 or more times until it is impossible for the merchant to identify the traffic source and quality drops off completely.

Jeannine Crooks Affiliate Window

As we move away from last click, I see a huge new wave of fraud coming through to prove incrementally, including dropping false positive cookies, and it will likely become sort of a wild west at the beginning.

Dan Thomas Syzygy NYC

I wish I were a clairvoyant! I am consistently surprised by the new and technologically innovative ways fraudsters find to dupe the system. Phone number spoofing and voice-altering software will continue to be a problem. What happens from here, only the pay-per-call gods will know!

Liza Schubert Astoria Company

Can We Prevent Affiliate Fraud?

Online marketing is at the forefront of almost every brand’s strategy, but it is made up of many different channels, from search to social to display and more. Affiliate marketing still stands out from the crowd, due to its impressive ROI, comparatively minimal risk, and capability to build brand awareness.

The question is, does the end justify the means? Are there ways for merchants to mitigate that risk? Better yet, are there steps that can prevent affiliate fraud altogether? Effective fraud management demands a multi-layer approach.

affiliate fraud shield

As Chargebacks911® COO Monica Eaton-Cardone explains, “You can’t use just one or two tools and call it a day. Fraudsters are cunning, and they change tactics as soon as they realize their efforts might be detected, so you need to be just as agile and innovative.”

What sorts of tools are we talking about? Let's look at six effective steps merchants can take to prevent affiliate fraud:

1.  Revisit Affiliate Program Terms and Conditions

When was the last time you examined your affiliate program contract? Keeping your terms and conditions up-to-date is one way to close loopholes and prevent affiliate fraud. A good attorney can catch exploitable factors that you might miss.


2.  Communicate—and Enforce—Your Terms and Conditions.

Closely related to the first item, advertisers need to make sure affiliates are aware of any changes to the terms and conditions, no matter how minor. Once new terms are introduced, be stringent on enforcing them.


3.  Keep a Close Eye on Your Data

In fighting affiliate fraud, the one factor most in your favor is the raw available data you can check, including information from referring sites, sub-affiliate networks, IP addresses, transaction trends, and more. The data is there: use it.


4.  Create a Routine

You have your updated terms and conditions, you're ready to enforce them, and you know what data you need to be scrutinizing. At this point, your best strategy is to create a routine for staying on top of your affiliate program. Set aside time every week to go through reports and root out suspicious activity.


5. Be Ready to Move

Remember: time is money. The more time that goes by once you discover fraudulent tactics, the more you lose. Act quickly and document any evidence, then issue a warning to the affiliate if you feel it could be an honest mistake. If the issue reoccurs, though, you'll need to terminate that affiliate relationship.


6. Get Professional Help

Affiliate fraud is one of the most dynamic challenges merchants face. However, finding the right combination of tools and services means minimizing risk without sacrificing revenue potential or alienating valuable industry connections.

The best way to prevent affiliate fraud is to work with an experienced, professional team that has the tools to help you identify issues before they become serious problems.

Chargebacks911's exclusive Affiliate Fraud Shield™ has helped merchants prevent more than $12 million in fraud losses in just the last year, including the cost of shipment, the loss of product, and chargeback fees. Campaign liabilities overall are reduced, and chargeback rates remain low. Plus, the unsavory publisher’s tactics are exposed, preventing future losses.

Best of all, the average merchant will see at least five times the ROI. Click below to learn more about this revolutionary new tool.


Prevent Chargebacks.

Fight Fraud.

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