Affiliate marketing is a pretty straight forward process: an advertiser (i.e., merchant) pays an affiliate marketer (i.e., a publisher) to promote a product or service and pays out a commission for every conversion the affiliate generates. Also referred to as performance marketing, it’s a valuable tool in a marketer’s mix as the affiliate is only paid if their efforts actually perform, i.e., result in a measured conversion. And this is where fraud comes in. Fraudulent affiliates fake the conversion (it may be a sale, click, install or lead) and collect the commission. In most cases, the fraudulent scheme is not discovered at all, or by the time it is, the affiliate is long gone with the commission.
How do affiliates commit fraud?
There’s several different ways they can do it, including:
- Through the use of bots: An affiliate will use a bot to create fake clicks, installs, and leads. A campaign may look great on paper with tons of click throughs, and lots of form submissions, but a closer look will reveal that there’s no further actions, i.e., there may be a ton of traffic being driven to a page but no one is converting and the leads are unresponsive.
- Using stolen credit card information: The affiliate will actually go so far as to purchase the advertiser’s product or sign up for a service with a stolen credit card. If the sale goes through, the affiliate will be paid a commission. The scheme is revealed when the credit card holder reports the fraudulent charge. The credit card company does a chargeback and the merchant is forced to return the funds, however, the commission is gone. In this scenario, the merchant is also in danger of getting their merchant account suspended if there are multiple fraudulent charges, which could be detrimental for a small online business.
- Using click farms or install farms: This may also be referred to as manual, or human-generated, fraud. In this scenario a person, or people, are paid to interact with pages, install apps, and/or fill out forms. This generates conversions in the eyes of an affiliate marketing campaign, but they’re worthless for the advertiser.
How does fraud affect the industry?
The waste of marketing budgets is the most obvious result of affiliate fraud, but there there’s other negative effects as well, including:
- The loss of confidence in affiliate marketing. Affiliate marketing can be a mainstay for small, independent publishers and bloggers who legitimately drive traffic to merchant sites and help to boost sales. But a few nefarious affiliates can shake the confidence that advertisers have in the industry, and after getting burned too many times, they may move marketing dollars to different channels and abandon the industry all together.
- Credit card fraud. While in most cases, consumers are quickly refunded money from fraudulent transactions, it’s still frustrating and can cause anxiety. And, as we mentioned earlier, the suspension of a merchant account following too many fraudulent charges can be detrimental to a small business.
- Skewed marketing analytics. In today’s data-driven world of marketing, where campaign decisions, target markets, and product development may be based on the actions of current consumers, the wrong data can lead a company down the wrong path. Conversions from bots or other fraudulent means can negatively skew data and send the wrong signals to marketers.
This is a quick overview of how fraud may affect the affiliate marketing industry. View Fraudlogix’s performance marketing page for solutions to click fraud, lead fraud, install fraud, and more.