What Merchants Need to Know About Affiliate Fraud

Affiliate marketing has grown from a new tool to a multi-billion dollar industry over the past two decades, and like any relatively new process, it has admirers—including the merchants who are projected to spend $4.5 billion on affiliate marketing in 2016—and critics, who raise concerns about the potential for fraud.

As with ecommerce in general, merchants who prioritize fraud prevention and detection will benefit the most from affiliate marketing relationships, while those who don’t do their research are putting their revenue stream, reputation and banking relationships at risk.

Fortunately for merchants, there are established practices to get affiliate marketing right. Recognizing the forms that affiliate fraud can take, understanding the consequences, and following safety recommendations can reduce the risks.

Many Types of Affiliate Fraud

As with credit card fraud, affiliate fraudsters have developed a number of methods to try to game the commission-based system. These include: duping online consumers by installing cookies when they visit sites to look for coupon codes during checkout (known as cookie-stuffing), installing cookies through adware and spurious browser helper tools or during customer visits to misspelled merchant URLS (“typosquatting”), and outright malware. In the most extreme cases, fraudulent affiliates make purchases with stolen credit card data or lure customers with false product claims.

The Consequences of Affiliate Fraud

Cookie-stuffing and other tricks that allow affiliates to claim credit for transactions they didn’t generate costs merchants money in wasted commission payments. The loss might only amount to a few hundred dollars if the merchant is vigilant and catches the fraud early, but in some cases thieves will get away with millions. Perhaps the most high-profile example involved eBay affiliates who authorities say bilked the company out of up to $35 million.

Commission losses are reason enough to take an aggressive stance against affiliate fraud, but the damage can go much farther. Customers who buy based on false or misleading claims made by scam affiliates are almost certain to file chargeback requests—as are consumers whose stolen card data is used to make commissioned purchases. By that time, of course, the duplicitous affiliate has already received a hefty commission, so the targeted merchant is liable for the lost commission, the lost product or service, and chargeback fees. On top of that, false affiliate promises can wreck a company’s reputation among shoppers, and excessive chargebacks can raise processing rates or even shut down a merchant’s banking relationships altogether.

How Merchants Can Protect Their Affiliate Programs

The single best practice a merchant can follow is to get to know their partners in affiliate marketing. This includes not only outside program managers and network contacts but the affiliates themselves. Merchants can meet prospective affiliates, build lasting relationships, and keep up with the latest developments at industry events like Affiliate Summit and in online forums for merchants and affiliates. Depending upon the size of the business and the resources available for in-house affiliate marketing, merchants should either vet prospective affiliates individually or through a trusted affiliate program manager.

All merchants should take the following steps, as well. Gather, keep and regularly review as much program information as possible, such as IP addresses, referring URLS, and chargeback code data to see if patterns are developing that might indicate affiliate fraud. Some merchants have been able to spot cookie-stuffing schemes early on by reviewing this data daily or even hourly.

Ensure that your payment service provider (PSP) will screen new affiliates and incoming referrals to ensure that they don’t originate from IP addresses that are on suppression lists, to stop fraud before it starts. Create offers that contain fraud-abatement tools to verify and screen incoming traffic.

Regularly visit affiliates online to ensure that they’re presenting the company’s products and services accurately, without language that might mislead customers and lead to chargebacks and reputation damage. Finally, train employees to contact customers if there is a concern about an affiliate-referred transaction, to confirm the legitimacy of the purchase before fulfilling the order.

Managing risk in affiliate programs does take time and vigilance, but the rewards for merchants are a larger pool of prospective customers, more sales, and good relationships with customers, partners, and banks.

Kirsty Tull is marketing manager at BillPro