What is Affiliate Fraud: How to Detect and Prevent It?

You’ve launched an affiliate marketing program, and you’re ready for the website traffic and conversions to funnel in.

But you face a problem:

Your website is seeing a big increase in traffic, but few conversions. In fact, most of your new leads are bogus. You’re scratching your head at dwindling margins. What could be going wrong?

Check for affiliate fraud. This increasingly common type of fraud targets affiliate campaigns with bot traffic, fake clicks, and improperly attributed leads. The impacts: Bots now account for up to 24% of mobile traffic in affiliate campaigns. And in 2022, affiliate fraud cost businesses $3.4 billion.

Here’s the good news: New tools are available that can help businesses detect affiliate fraud. Behavioral analytics, ID verification, and anomaly detection to name a few are must-have for preventing fraud in your affiliate campaigns.

But first, to prevent affiliate fraud you must recognize the warning signs. If you need some help, this guide provides an in-depth overview:

• What affiliate fraud is
• How affiliate fraud harms your business
• Common affiliate fraud techniques
• Tools and strategies to stop affiliate fraud

What Is Affiliate Fraud?

Affiliate fraud affects affiliate marketing campaigns

Affiliate marketing is a performance-based marketing strategy. An affiliate for your business earns a commission for promoting your products or services. For example, a YouTuber might feature your products and earn a referral fee if their recommendation turns into a purchase.

Here’s how it works:

1. The Merchant: A company recruits affiliates to promote their products or services.
2. The Affiliate: An affiliate partners with the merchant. They promote the merchant’s products through their website, blog, social media, or other channels.
3. The Customer: A potential customer sees the promotion, clicks on the affiliate’s unique link, and makes a purchase.
4. The Commission: The merchant tracks the sale through the affiliate link and pays the affiliate a commission.

Related. See more tips and techniques for combating digital fraud.

When It Turns to Affiliate Fraud

Affiliate marketing turns to fraud when bad actors try to manipulate the affiliate commission system.

Some of the most common ways affiliate fraud is committed include:

1. Click Fraud

Some affiliate campaigns pay a commission for traffic. The more traffic an affiliate marketer drives to the campaign, the more the commission.

Click fraud occurs when automated programs (bots) are used to generate fake clicks and inflate website traffic.

2. Typosquatting

Typosquatting happens when a fraudster builds a lookalike website for a popular domain. And uses a similar, albeit misspelled or deceptive, URL.

With this type of affiliate fraud, the fraudsters aim is to steal commissions or commit data theft through phishing.

3. Cookie Stuffing

Cookies are used to track affiliate commissions. However, fraudsters can inject fake affiliate cookies on an affiliate’s website to hijack commissions.

For businesses, cookie stuffing reduces your payouts to legitimate affiliates. If there is a serious problem, affiliates may stop promoting your products.

4. Malicious Adware

Adware can become installed on your computer after clicking a fraudulent link. This malware then redirects clicks to fraudulent affiliate links.

The goal is to steal commissions from legitimate affiliates.

5. Data Theft

Data theft is often the goal of affiliate fraud. A fraudster may use illegitimate links to drive traffic and get customers to make “purchases”. Ultimately, these scams look like a deal for your business, but really, it’s just a masked website used to steal customers’ credit card data and use in card not present (CNP) fraud.

The Impact of Affiliate Fraud on Businesses

As a business owner, affiliate fraud can have a real impact on your marketing efforts. You’ll notice diminishing or negative ROI in your marketing campaigns, for one. But also, your business will experience a loss in productivity, as they deal with sorting out fraudulent leads.

Here are some of the ways affiliate fraud harms businesses:

1. Increased Costs

Affiliate fraud affects businesses financially in three ways:

• It diminishes revenue, as your marketing budget stops turning into sales.
• Second, your advertising costs will increase.
• Finally, you’ll spend more, as you chase lost profits and investigate fraud.
• Costs can skyrocket if affiliate fraud isn’t mitigated.

2. Operational Challenges

Affiliate fraud makes it difficult to measure your marketing campaigns. Fraudulent clicks and conversions make skew your data; you’ll be navigating in the dark. And this often results in lost productivity from account and campaign managers.

3. Damage to Relationships

Successful campaigns rely on the power of legitimate affiliates. When fraud goes unchecked, it can breed suspicion among your affiliate partners. This can damage relationships and hinder the program’s growth.

You can also damage your business’s reputation with customers. If fraudulent activity results in poor customer experiences (e.g., fake products, spammy ads), it can damage your brand reputation and erode customer trust.

4. Brand Damage

Customers who fall victim to fraudulent affiliate activity are likely to share their negative experiences online, damaging your brand image and reputation.

Once trust is broken, it’s hard to win back. Fraudulent activity can lead to lost customers and a decline in brand loyalty.

5. Reputational Consequences

Affiliate fraud can attract unwanted media attention and further damage your reputation. In rare cases, fraudulent activity within your affiliate program can lead to legal repercussions, adding another layer of stress and complexity.

Affiliate Fraud Detection Techniques

Affiliate fraud is not just a nuisance, it’s a serious threat to your business’s financial health, operational efficiency, and brand reputation.

Vigilance is your best weapon in the fight against digital deception. Here are some tools you can use to prevent affiliate fraud:

1. Behavioral Analytics

A behavioral analytics tool monitors click velocity (from affiliates) and checks for IP address clustering and geolocation mismatches. For example, if several conversions/clicks originate from the same IP address, this may be a fraud signal.

2. Anomaly Detection

These tools monitor for unusual traffic and conversion patterns. A sudden spike in traffic or an unusually high or low conversion rate can be detected.

3. Rules-based Checks

These would be manually adjusted checks. For example, you might blacklist devices, prohibit traffic sources, or flag affiliate links with unusual formatting or embedded code.

4. Machine Learning

AI tools can be used for fraud scoring or to develop predictive models. You can use these tools to set a risk score for every affiliate candidate, for example.

5. Manual Review

You should offer a closed affiliate program and manually verify the legitimacy of each affiliate candidate.

Strategies to Prevent Affiliate Fraud

In addition to fraud detection tools, these proactive measures can help you safeguard your affiliate program:

1. Choose Reliable Affiliate Networks

Don’t just open your doors to any passerby. Partner with established affiliate networks renowned for stringent vetting processes and rigorous monitoring systems. These gatekeepers weed out bad actors before they can infiltrate your program.

2. Monitor Affiliate Activities

Vigilance is key. Regularly scan affiliate activity for anomalies. Be wary of:

• Sudden spikes in traffic
• Suspiciously high conversion rates from unknown sources
• Unusual geographic patterns.

Invest in robust fraud detection tools that analyze clickstream data and flag irregularities.

3. Set Up Clear Terms and Conditions

Leave no room for ambiguity. Craft comprehensive terms and conditions that explicitly outline acceptable and unacceptable affiliate practices. In your guidelines, provide clear definitions for:

• Click fraud
• Cookie stuffing
• Other illicit tactics
• Penalties for violations

This clear-cut contract sets expectations and empowers you to take decisive action against rule-breakers.

4. Use Multiple Data Sources

Relying on single-source data creates blind spots. Employ a multi-layered approach by integrating data from different platforms, including your website analytics, affiliate network reports, and payment processors.

This cross-validation helps identify discrepancies and exposes hidden fraudulent activity that might otherwise slip through the cracks.

5. Educate Your Affiliates

Empower your affiliates to be your partners in crime-fighting. Regularly educate them about the various forms of affiliate fraud, sharing detection tips and best practices. This collaborative approach fosters transparency and enables everyone to contribute.

Build a Stronger Affiliate Identification Program with FTx Identity

Combating affiliate fraud isn’t a sprint, it’s a marathon. First, educate yourself in how to recognize it and train your staff. Then, start implementing tools and strategies to prevent it.

Focus on continuous development. For example, you might first implement a behavioral analytics tool, before moving on to ID based verifications for onboarding new affiliates. Ultimately, though, if you build a comprehensive process, you’ll save yourself time and resources.

Need some help knowing who your affiliates are? FTx Identity helps online businesses build robust identity verification protocols. Contact us today to learn more.