Online merchants in the U.S. enjoyed their best Cyber Monday sales ever in 2018, pulling in a total of $7.9 billion during that 24-hour period. And, if industry trends are any indicator, about 16% of that total—$1.3 billion—came in through affiliate traffic.
Affiliate marketing can be a very effective way to drive traffic to your site, increase sales, and build your customer base. Affiliates can bring in consumers who may not have found your site otherwise. It’s no surprise that 81% of advertisers and 84% of publishers adopt affiliate marketing as part of their broader marketing strategy.
Despite the countless think pieces out there claiming affiliate marketing is dead, total affiliate marketing spend is expected to surpass $6.8 billion by 2020. That’s a more than 50% increase over 2016 totals.
But, while affiliate marketing presents plenty of opportunities, there are also risks worth considering. Namely, the threat of affiliate fraud.
Affiliate Fraud Is a Rampant Problem
About 2% of all transactions driven by performance marketing are probably cases of friendly fraud. It’s a widespread problem; in fact, one study from 2016 found 38.1% of partners in the Amazon affiliate program engaged in fraud! Nearly one in every five conversions to the site were associated with an affiliate identified as having committed fraud in the past.
Of course, not all affiliate fraud is malicious in nature. Most of these instances are probably cases of an affiliate engaging in behaviors they may not even realize are against the rules. Whether it’s deliberate or not, though, the end result is the same: the business loses money.
Due to the nature of affiliate marketing, the tactics fraudsters employ are difficult to identify. Remember that fraudsters are creative and persistent. They use any means they can to take advantage of a situation and steal your revenue.
In many ways, affiliate fraud is a natural evolution of the classic con artist routine. The fraudsters earn your trust, and although you think they’re on your side, those individuals actually use digital slight-of-hand to trick you into shelling out a commission for no reason. Cardholders then demand chargebacks once they identify the fraudulent activity.
Some common tactics these fraudsters employ include:
- Spam: Fraudsters may send out spam emails to consumers to try and generate clicks.
- Typo-Squatting: Nabbing a URL based on a common misspelling of a site, then redirecting users.
- Cookie Stuffing: Loading a consumer with cookies for different sites, then collecting a commission.
- Bots: The fraudster assembles a bot network, then uses them to generate sales or clicks on the advertiser’s site.
- Identity Theft: A criminal uses stolen information to make a purchase, then collect a commission on top of that.
Top 5 Tips to Prevent Affiliate Fraud
The risk of affiliate fraud scares many businesses away from the practice altogether. That’s a shame, as it can be very lucrative if conducted properly.
If you want to protect your business against affiliate fraud losses, you need to be proactive. I recommend the following steps to protect yourself:
1. Outline unacceptable practices in your contract
A good contract outlines what you expect from your affiliate, both in terms of what to do and what not to do. You should specify which tactics for driving traffic and sales are acceptable and explain the penalties for noncompliance. Not only will this help keep fraudsters out of your affiliate program, it will also reduce the possibility of innocent mistakes by well-meaning affiliates.
2. Carefully Vet Prospective Affiliates
Be sure you know your affiliates and networks before you get involved. Research their reputation with other businesses; those who have a negative experience with an affiliate or network will often want to share and let others know.
3. Monitor Affiliates’ Activity
Once you allow a new affiliate or network into your program, it’s important to regularly monitor their activities. You should be aware of sites that generate a suspicious volume of referrals, or who produce a sudden spike in sales. Neither is necessarily indicative of fraud, but you should review the activity to ensure legitimacy.
4. Buy Up Similar Domains
You should buy as many domain names that are very similar to your own as possible. This will stop affiliates from claiming sales through typo squatting, and protect customers against other malicious activity based around slight misspellings. Use the alternate URLs to redirect traffic to your own site, rather than letting fraudsters do it.
5. Share Your Experiences
When you discover fraud, don’t keep it a secret. Sharing details about banned affiliates, or even taking legal action against those you suspect of criminal activity, can help rid the industry of fraud. By sharing your experiences, you help yourself, your customers, and other businesses.
I’m hoping 2019 proves to be the year businesses decide to get serious about affiliate fraud. This is a realistic possibility now, as more and more people wake up to the realities of the affiliate market.
High-profile cases like the recent arrest of Alexander Zhukov, the affiliate fraud “mastermind” who bilked merchants for more than $7 million over several years, are raising the issue. If even sites like Buzzfeed are taking notice, then hopefully so will online merchants.
Of course, the problem will get worse before it gets better. It’s in your interest to act now and protect your business against bad traffic and other affiliate fraud threats.
I believe the affiliate space will continue to grow and become even more dynamic with time. However, that’s contingent on whether we take the necessary actions to reduce fraud. Otherwise, the affiliate space risks losing legitimacy, and a valuable tool to help bring in new customers will be off the table.
Monica Eaton-Cardone is an entrepreneur and business leader with expertise in technology, e-Commerce, risk relativity and payment-processing solutions. She is COO of Chargebacks911 and CIO of its parent company Global Risk Technologies.
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