What is Affiliate Marketing Fraud?
Fraud in affiliate marketing occurs when affiliates use unethical and illegal means to manipulate the affiliate marketing system for personal gain. The means can range from bidding on specific keywords or domains to forcing clicks to their sponsors through their affiliate links. Below are some of the most common techniques used by bad actors and scammers:
- Cookie Stuffing: Fraudulent affiliates engage in 'cookie stuffing,' where they secretly place tracking cookies on a user's browser. If that user later makes a purchase from the merchant, the cookies falsely indicate that the affiliate referred the sale, even though the user never clicked on the affiliate's link. This lets the affiliate wrongfully claim commissions for sales they didn’t actually drive.
- Typosquatting: Affiliates purchase a domain name that is only a few characters off from the merchant’s trademarked domain, in an effort to direct users who mistyped the merchant’s domain to their website instead. This is essentially a form of Cookie Stuffing.
- Malware and Adware: Affiliates may use malware or adware, installed on users' computers without their knowledge, to generate fake referrals. These programs open pop-up ads or hidden windows for a merchant’s site the user is already browsing, but embed an affiliate cookie to falsely claim commissions. In some cases, fraudulent affiliates install malicious browser extensions that secretly redirect clicks to affiliate sites, tricking merchants into paying for traffic that the affiliate didn't do any actual work for.
- Fake Purchases: Affiliates purchase items through stolen credit cards (which will get chargebacked/cancelled), encourage users to return items after purchase, or generate fraudulent orders that they cancel, after claiming the commission.
- Fake Accounts and Bots: Affiliates create accounts and use bots to generate fake clicks and artificially increase traffic.
- Violations of Paid Search Policy: Usually in the form of trademark bidding, where unethical affiliates will bid on trademarked search terms even when expressly forbade to do so by the TOS of the business. This is done to drive traffic to the affiliate's site, where they can lay a cookie on an unsuspecting visitor to "claim" their purchase intent.
In essence, lots of affiliate marketing fraud stems from the idea of cookie stuffing, which takes advantage of the fact that affiliate marketing softwares use cookie-based tracking systems.
Dangers of Fraud in Affiliate Marketing Program
While affiliate marketing as a whole is generally a pretty strong growth channel for companies, if affiliate programs aren't set up properly, fraud can lead to significant financial losses for the company & harm legitimate affiliates.
- Financial Losses: Most unethical affiliates commit fraud to earn extra commissions. Consequently, as a result of affiliate fraud, businesses will pay commissions for fake clicks, conversions and leads. This wastes their budget on affiliates who ultimately did nothing to promote their brand or products.
- Operational Disruption: Once fraud is discovered, businesses may have to change operations, such as revising affiliate agreements or even halting affiliate programs, in an effort to prevent fraud in the future.
- Harming Legitimate Affiliates: Fraud drives traffic & conversions away from legitimate affiliates, leading to reduced commissions and dissatisfaction. This can further weaken the affiliate program as a whole.
It's incredibly important to have a well designed affiliate program with checks & balances to prevent fraud from undermining the business.
How to Prevent Fraud
Understanding how affiliate fraud happens helps inform our strategy to prevent it:
- Clear Terms of Service: This document will set up the expectations and parameters for your affiliates to operate within. It should include the following:
- Explicitly denoting that affiliates are not allowed to bid on a brand's name or related terms in paid search advertising (negative keywords)
- Forbidding the use of trademarks in any sort of domain or naming system
- Giving you the ability to delay payments, so you can have the time to verify fraud if it should occur
- Thorough Affiliate Application Reviews: While time-consuming, interviewing each of your potential affiliates will deter most affiliates who are intending to defraud you. This can be a simple email or phone call, which you can make as late as their first sale. Affiliates who do not respond to your communications may be up to something illicit or fraudulent.
- Monitoring and Reviewing Statistics: Keep an eye out for very fast affiliate activity in a very short span of time. Any big jumps in sales or conversions should be followed up on. Another thing to pay attention to are conversion ratios far above or below your program’s average.
- Consistent Audits: Regularly conduct audits of the traffic and leads driven by affiliates, and act quickly if and when fraud is uncovered.
- Strict Consequences for Fraud: If you discover fraud in your program, the best course of action is to terminate the fraudulent affiliate, which sends a message to other affiliates about what behavior is and is not acceptable.
Understandably, keeping track of affiliate activity can be difficult, especially as you grow your affiliate program. Set up a call with Affil to see how our compliance & monitoring solutions could help you achieve your goals!
Conclusion
Affiliate fraud is one of the biggest dangers in an affiliate marketing program, posing financial, legal, and reputational risks. To run a successful program and maintain a strong relationship with affiliates, it's essential to stay vigilant and watch for common fraud techniques. Take swift and decisive action when fraud is detected to ensure both your business and legitimate affiliates can thrive. Affil can help ensure affiliates are staying compliant within product + regulatory guidelines.
