What is Affiliate Fraud?

August 16, 2023/ Jarrod Wright /

The rising issue of affiliate fraud is a significant concern for businesses that leverage online advertising. Affiliate marketing can provide a profitable and sustainable revenue stream, but it is not without its problems, notably the risk of fraudsters exploiting your efforts for personal gain.

So, how can you fully leverage affiliate marketing without falling victim to these deceitful schemes? Let’s explore.

Understanding Affiliate Fraud

Affiliate marketing involves digital advertising strategies where one entity (the “affiliate” or “publisher”) utilizes its website to promote the products or services of another business (the “advertiser”). This is done in hopes of driving traffic to the advertiser’s site. The affiliate earns a commission when the referred traffic results in a conversion for the advertiser.

The affiliate marketing relationship is mutually beneficial, rewarding affiliates with commissions. At the same time, it boosts sales for advertisers and connects consumers with desired products or services.

How Affiliate Fraud Works

Affiliate fraud can broadly be categorized into two types. Fraudsters may use deceptive tactics to convince consumers to make a purchase. Or, they may employ stolen information to initiate fraudulent transactions. Either way, the cardholder could end up filing a chargeback to recover lost funds.

Affiliate fraud can manifest differently based on your payment model, including:

• Cost-Per-Acquisition (CPA): Affiliates are compensated when a sale is finalized. Using stolen identities and credit card data, fraudsters execute fake transactions, often automated by bots. This can result in substantial chargeback costs for your business.
• Cost-Per-Lead (CPL): In this model, affiliates are paid when a form is filled out, a newsletter is subscribed to, or valid user data is submitted. Fraudulent affiliates may provide subpar customer data, use bots to fill out forms or offer “opt-out” lists instead of “opt-in” ones.
• Cost-Per-Click (CPC): Affiliates are paid based on the number of ad clicks. Fraudsters automate clicks using bots and develop strategies to guide unsuspecting users toward clickable links.
• Cost-Per-Impression (CPM): Affiliates earn a fee for every thousand impressions. Fraudsters fabricate websites and use bots to artificially inflate ad views or stack multiple ads to count as impressions.
• Influencer Model: Prominent online figures are given free products. On the other hand, the influencer may dishonestly create dummy accounts, inflating their statistics with fake views and comments. A whole industry exists to boost social profiles for this purpose.

When fraud is eventually discovered, the affiliate often has already pocketed the commission and disappeared. They leave you to shoulder the lost commission, the lost product or service, and any chargeback costs associated with the fraud. Plus, your reputation with banks and clients takes a hit as your chargeback ratio increases. This could drive up your card processing fees or even terminate your processing abilities.

Common Techniques for Affiliate Marketing Fraud

Because much of the affiliate marketing process is automated, there’s limited direct human oversight, providing fraudsters the opportunity to hijack operations. They execute this through ad fraud, alongside other specific tactics, including:

• Malware: Users unknowingly download spyware or other adware programs, which secretly embed malicious code onto users’ devices, artificially boosting reported traffic figures.
• Cookie Stuffing: Cookies are deposited on every visitor’s device, granting the affiliate a commission for potential future purchases, regardless of whether the user clicked the affiliate link.
• Domain Squatting: Fraudsters create legitimate-looking domains with URLs that closely resemble a successful online retailer. Users are directed to the real site, but not before a cookie snatches a referral from the redirection.
• IP Spoofing: Fraudsters fabricate IP addresses to mask their identity. Affiliates covertly click links on their sites to artificially enhance the traffic driven to an advertiser’s site.
• iFrame: A 1-pixel square iframe script, invisible to users, is added to an online ad. The pixel is used to download a secondary (hidden) link, granting the affiliate credit for future sales.
• Postback: Fraudsters gain access to the transaction ID and approval address, then try to sidestep the actual advertiser to claim commissions for conversions that never took place.
• Discount Code Abuse: Websites provide coupons and discount codes for online shoppers, attach a cookie to the user’s browser, and claim credit for the sale.

While the above list covers many tactics, fraudsters have many more tricks up their sleeves for committing affiliate fraud. The longer you take to identify fraudulent tactics, the more you stand to lose.

How to Prevent Affiliate Fraud

Balancing eCommerce conversion optimization and fraud prevention can be a delicate act. That’s why an effective fraud management strategy necessitates a layered approach.
Remember, fraudsters are crafty; they’ll switch up their tactics as soon as they sense detection. You need to be equally agile and innovative; deploying just a couple of tools won’t cut it.

Here are ten methods, strategies, and best practices to help combat affiliate marketing fraud:

#1 | Manual Affiliate Screening

Rigorously check the background of potential affiliates before approval. Look for suspicious website domains, questionable email addresses, and implausible social media profiles. Verify the authenticity of their websites and content.

#2 | Affiliate Monitoring Software

Use software like Affise, Voluum, or Post Affiliate Pro to track and scrutinize affiliate activities. These tools help monitor traffic sources, conversion rates, and other key metrics to detect anomalies indicative of fraudulent activities.

#3 | Real-Time Fraud Detection

Utilize real-time fraud detection tools like FraudScore, Fraudlogix, or 24metrics to assess traffic patterns and pinpoint suspicious activities. These platforms leverage machine learning algorithms to spot fraudulent activities in real-time, offering actionable insights to prevent further harm.

#4 | Multi-Touch Attribution

Apply multi-touch attribution models to track and credit conversions to the appropriate affiliate. This helps prevent fraudsters from falsely claiming credit for leads they didn’t generate.

#5 | Two-Factor Authentication (2FA)

Enhance account security and guard against unauthorized access by introducing 2FA for all affiliates.

#6 | Secure Cookie Tracking

Employ secure cookie tracking methods such as first-party cookies or fingerprinting to counter cookie stuffing and other fraudulent practices.

#7 | Regular Auditing

Review your affiliate program’s performance regularly, track changes, and spot potential fraud. By staying proactive and examining your program’s data, you can identify and address any fraudulent activities before they escalate.

#8 | Clear Terms & Conditions

Establish comprehensive terms and conditions for your affiliate program. Ensure all affiliates are clear about the rules, prohibited practices, and the repercussions of violations. This can dissuade fraudsters from trying to exploit your program.

#9 | Affiliate Training

Offer resources and training to your affiliates to help them understand the risks of fraud and how to prevent it. Cultivating a well-informed affiliate community fosters vigilance and cooperation in combating fraud.

#10 | Open Communication & Transparency

Encourage open lines of communication with your affiliates. Urge them to report any suspicious activities or concerns. Maintaining transparency and building trust creates a stronger barrier against fraud.

Last Update: August 16, 2023