Fraud in the world of affiliate marketing is a major headache for advertisers, and while the numbers make for some sombre reading, the figures are only set to get worse over the next few years. According to Juniper Research, the total loss for advertisers due to fraud will rise to $100 billion by the year 2023. That’s an insane number, and unfortunately, affiliate fraud is to blame for the bulk of it.
Affiliate marketing is becoming more and more critical for online ventures. The customer journey is much more likely to start on a review site or a social media platform. Your potential clients will probably already have engaged with your brand before even visiting your website. Your affiliates will spread the word for you.
If your marketing strategy relies solely on your own in-house campaigns and organic growth, you may well be in for a long and expensive ride. There’s a reason CPA payouts for affiliates have risen so sharply over the years. Leads are getting expensive!
Take the financial services vertical, for example. One of the highest paying niches, CPA payouts for affiliates can reach anything up to $1,000 depending on the geo. That’s a crazy amount to pay for a conversion where the advertiser is probably getting a $300 first deposit. With numbers like this, it’s no real surprise that affiliates will try to trick the system, and that’s where the fraud problem starts. That’s why your affiliate program needs sophisticated fraud detection systems in place.
Unscrupulous affiliates will adapt their fraud to your payment model.
The advertiser-affiliate relationship is performance-based, where you, as an advertiser, reward your affiliates based on their successful completion of a specific action which leads to a conversion. Typically these actions will fall into one of four categories:
CPA – Cost Per Action
Under the CPA model, you pay your affiliates for the successful conclusion of a sale. Affiliate fraud on the CPA model involves stolen credit card and ID numbers to put through conversions. In many cases, this consists of the use of bots in addition to the stolen financial data. Apart from the affiliate payouts, this type of fraud also involves significant chargeback fees for your company and potential payment processor blocks if your transactions are seen as being too risky for the processor.
CPL – Cost Per Lead
With the CPL model, affiliates are paid for leads that complete a registration form, with no further action needed, such as a purchase or deposit. Fraud under the CPL model involves the affiliate sending bot traffic to your registration pages, mass form submissions using software with stolen data and even mirroring your registration forms to look like opt-out forms. This type of affiliate fraud has seen a significant rise over the last few years, coinciding with the increase in the popularity of push notification traffic.
CPC – Cost Per Click
Under the CPC model, affiliates get a rate based on the number of ad clicks. Fraudulent affiliates will automate ad clicks using bots to inflate their click counts. Another tactic is to redirect clicks to the advertiser offer page, tricking users into clicking something like a video play button, which then redirects to the ad.
CPM – Cost Per Mille
Under the CPM revenue model, affiliates receive an agreed rate for every thousand impressions they get for an advertiser’s creatives. The usual tactic for fraudsters is to use cloned websites and automated bots to increase view counts. In many cases, unscrupulous affiliates will stack ads on top of each other, so one impression will count for multiple ads.
Affiliate fraud can have some very damaging consequences for your business. At the very least, you’ll be wasting money on fraudulent payouts, but that’s the very tip of the iceberg.
Fraud can leave you open to expensive chargebacks and even jeopardize your relationship with your payment processors. Your PSP could well decline to process any further payments for you, leaving you with no way to accept any new payments or deposits. This chargeback record isn’t something that goes away and, much like a credit rating, affects your ability to signup with other payment processors in the future.
The worst-case scenario can play out if your business is subject to any kind of AML (Anti Money Laundering) regulations. In the case of deposit fraud with stolen credit card details, you could find yourself liable for AML processes and fines, fines which can get very expensive, very quickly.
While this all sounds very much like doom and gloom, it’s not all bad news. There are ways to combat affiliate fraud, so all is not lost.
If you are seeing increased affiliate fraud in your partner program, get in touch with us. One of our resident experts will work with you to minimize fraud and offset the effects of any existing fraudulent practices for your business.
Signup for our no-obligation trial and let BAFF go to work for you in the fight against affiliate fraud!