Does affiliate fraud occur in the affiliate marketing process today? Yes. In the same way it does with influencer marketing, paid marketing, content marketing (plagiarism), and every other kind of digital marketing. A striking difference is that, with affiliate marketing, an account manager or you, the advertiser has the ability to go back and reverse compensation to an affiliate if/when it’s been determined that their commissions were undeserved.
Affiliate marketing is one of the most efficient methods to grow your eCommerce or Saas business, but unfortunately, there are great risks of fraud that could hurt your earnings and undermine your advertising efforts.
The issue of affiliate fraud is a serious one, and it’s on the rise. However, identifying the various methods used by illegitimate affiliates can help safeguard you against it.
When an affiliate program is effectively overseen, establishing a process for consistently checking for fraudulent activity is quite straightforward. It simply requires due diligence.
This article will explain what affiliate fraud is and discuss some of the most recurring types we’ve seen. Then we’ll provide you with four key methods you can use to prevent affiliate fraud. Let’s dive in.
What is Affiliate Fraud?
Since affiliate imarketing uses a performance-based approach to reward affiliates, commissions are paid only when an affiliate causes an action to happen.
These actions could be clicks or attracting leads, but in many cases, the commission is paid only after a sale has been made, so some affiliates may try to play a smart one on the system.
Unfortunately, the digital tracking and attribution model behind affiliate marketing is not foolproof. Research shows that over 35% of digital ad traffic is fraudulent. Problems arise when fraudsters exploit or abuse the affiliate marketing system to falsely or unfairly claim commissions.
Put simply, affiliate fraud is when an affiliate participates in or executes illegal activities to scam an advertiser or even fellow affiliates.
These scammers can implement a variety of methods to trick companies into paying them commissions that aren’t actually valid.
Over the years, there have been hundreds of cases of affiliate fraud that have made international headlines, let’s briefly look at 8 of the most outstanding affiliate frauds of all time in no particular order.
8 Real-Life Cases of Affiliate Fraud
1. Nordstrom $1.4 Million Affiliate Fraud (2012)
In 2012, two brothers, Andrew Chiu and Allen Chiu were convicted after the US Supreme Court found them guilty of a scheme to defraud Nordstrom of more than $1.4 million in commissions.
The FBI revealed that Andrew and Allen were affiliates of FatWallet., a membership-based shopping community website promoting various online retailers by providing coupons and cashback incentives for purchases.
FatWallet paid the brothers cash back rewards for purchases made at various online retailers, including Nordstrom.com.
Later in January 2010, the brothers grew greedy and discovered how they could exploit a computer programming error in Nordstrom’s ordering system by placing orders that would ultimately be blocked by Nordstrom.
The fraudulent ordering resulted in Nordstrom paying $1.4 million in rebates and commissions, with more than $650,000 in fraudulent cashback payments going directly to the brothers’ bank accounts.
2. eBay $28 Million Affiliate Fraud (2013)
In 2013, Shawn Hogan, the CEO of a successful online marketing company, Digital Point Solutions, was sentenced to five months in federal prison for defrauding eBay of over $28 million in a cookie-stuffing scheme.
This case was so severe that eBay had to create an online investigation program called “Trip Wire,” just to monitor the traffic Hogan was sending to them because it seemed too good to be true.
As the investigation progressed, another fraudster, Brian Dunning, eBay’s second biggest affiliate marketer (or so they thought) was discovered.
The company had paid both Hogan and Dunning over $35 million in commissions over the years, court papers reveal.
3. Criteo 2016
In 2016, a company, Criteo, filed a fraud case against SteelHouse, a competitor. They claimed the competitor had manoeuvred the system to steal their sales.
It got so complicated in the end, that both sides accused each other of using dubious methods to artificially drive up their click rates.
The case began when Criteo alleged it had lost business because SteelHouse used a “counterfeit click fraud” method to falsely take credit for user visits to retailers’ web pages.
Many retailers measure the performance of their ad tech vendors by using a method called “last-click attribution,” which gives credit to whichever computer served the last ad a user clicked on before landing on their websites.
4. FTC 2017
The Federal Trade Commission in 2017 charged an online marketing operation for deceptive ad practices, driving users to their website via affiliate networks (2017).
The FTC charged the affiliate marketing operation with sending millions of consumers spam emails with links to fake news sites filled with fictitious articles and phoney endorsements to sell weight-loss products.
5. $7 Million Affiliate Fraud 2018
In 2018, the Russian police arrested Alexander Zhukov, an affiliate fraudster accused to have taken more than $7million worth of commission and rewards from advertisers.
The lawyer in the case, Arkady Bukh commented: “There is widespread fraud from huge amounts of traffic getting directed through botnets. Before it was boys and girls in Russia sitting in boiler rooms clicking manual clicks in order to get apparent traffic to defraud affiliates, now it’s done by bots.”
6. Google Play Store (2018)
In 2018, Google warned app developers of malicious SDKs being used for attribution fraud. Later that same year, Google struck against Cheetah Mobile’s File Manager and the Kika Keyboard on the Play Store.
It was said that they were among a rise in install attribution abuse falsely crediting app installs by creating false clicks.
Google says: “We take reports of questionable activity very seriously. If an app violates our Google Play Developer policies, we take action.
That’s why we began our own independent investigation after we received reports of apps on Google Play accused of conducting app install attribution abuse by falsely claiming credit for newly installed apps to collect the download bounty from that app’s developer.”
7. Uber $70 Million Affiliate Marketing Fraud (2019)
Uber filed a fraud case against AdTech companies in 2019, claiming $70 million was subject to attribution fraud. Kevin Frisch, the former head of performance marketing, after an investigation, said he turned off $100 million out of $150 annually spent on mobile app installations to get new drivers.
“We basically saw no change in our number of rider app installs. What we found was that a number of installs we thought had come in through paid channels, suddenly came in through organic. I started gaining reports and I started seeing things that just did not make any sense.
There is an app that has 1000 monthly active users and in theory, we got 350,000 installs from them. We kept peeling this back, and we found that someone saw an ad and downloaded and opened the app within two seconds, which is just not possible. We discovered what we had was attribution fraud.”
8. FTC $4 Million Affiliate Marketing Fraud (2020)
The Federal Trade Commission found some affiliate marketers of My Online Business Education (MOBE) wanted and retrieved the sum of $4 million from them.
These affiliate marketers had deployed a fraudulent business coaching and investment scheme in March 2020, consumers paid as much as $60,000 for MOBE mentoring services. These fraudulent affiliates swindled consumers out of millions of dollars by making outlandish and fake earning claims.
Of course, there are millions of affiliate frauds still going on and some may never get detected. In the case of one travel website, spending $7million a month on media and digital ads, yet suffered poor conversion rates.
It was later discovered that there were many significant affiliate frauds going on, driving 15% of traffic but the visitors were not converting.
In another case, a US agency managing ad spend of $250,000 a month had affiliate sites that were being paid on a cost-per-click basis to drive traffic. Over 700 bots attempted to visit their site, 102 of them attempting to return over 400 times to the site. Obviously, none converted.
In another instance, a personal loan company, in 2020, saw a 9.6% fraud rate coming from their affiliate channels.
This affiliate fraud triggered a large volume of “loan reverses”. This sees the loan company approve loans based on a specified criterion, only to cancel them as details turned out to be fake or fraudulent.
This has seen affiliates place a massive exposure on the loan business which was forced to rip up loans of those likely to default on their payments.
In these last cases, it is said that the parties involved in these affiliate fraud cases are yet to be caught.
Common Types of Affiliate Fraud
Affiliate fraud comes in many different forms. Some of the most common types include:
1. Click fraud
This is the act of illegally clicking on an affiliate link to increase site visits. Click fraud happens in all affiliate marketing niches and many other forms of digital marketing and may involve either a human, a computer program, a bot, or an automated script pretending to be a legitimate user and clicking on paid search advertising with no intention of purchasing something.
Click fraud can sometimes be carried out by a site’s own owners to artificially boost its ad revenue.
It can be spotted and prevented through a variety of means, such as specialized monitoring software that can identify anomalies or suspicious click activities.
This is a type of social engineering attack that targets internet users who incorrectly type a URL into their web browser rather than using a search engine.
Typically, it involves tricking users into visiting malicious websites with URLs that are common misspellings of legitimate websites. Users may be tricked into entering sensitive details into these fake sites. For organizations victimized by these attackers, these sites can do significant reputational damage.
The ‘typo’ in typosquatting refers to the small mistakes people can make when typing on a keyboard. Typosquatting is also known as URL hijacking, domain mimicry, sting sites, or fake URLs.
3. Cookie stuffing or cookie dropping.
This is a form of affiliate fraud where a website drops one or more third-party cookies onto a visitor’s web browser. These malicious cookies cause advertisers with affiliate programs to misattribute any traffic with those cookies to the affiliate fraudster.
This can take rewards away from affiliates who brought the traffic to the business or cause the business to spend money on affiliate reimbursement when the fraudster did nothing to promote their business.
Cookie stuffing harms a company’s affiliate marketing efforts since the affiliates who produce results start to see less profit from the program, which makes them less likely to keep participating.
4. Attribution fraud
Also known as “attribution fraud,” this is when thieves steal credit card information to install apps, to manipulate app tracking attribution platforms.
Attribution fraud could also occur as a type of mobile ad fraud where criminals attempt to steal credit for app installs, by reporting fake clicks as the last engagement right before the app is first launched by a legitimate user.
As an advertiser, you might end up paying commission for bot clicks or sales that never took place or face unnecessary expenses that threaten your bottom line.
Additionally, innocent affiliates or staff could be unjustly blamed, penalized, or deprived of their deserved rewards for the black hat behaviour of fraudsters. This is why you should be on the lookout for the slightest signs of affiliate fraud and take action immediately.
Four Ways to Prevent Affiliate Fraud
Now that we understand what affiliate fraud is and the various forms it can take, and have even discussed some real-life cases, it’s now time to learn how to avoid it. Let’s take a look at four effective methods you can use to prevent affiliate fraud.
1. Screen Your Affiliates
Adopting a strategy for the vetting process to make sure affiliates are legitimate from the start can go a long way toward preventing fraud.
For example, you might consider implementing a multi-stage application process and configuring it so that you have to manually approve new affiliates.
When screening a potential affiliate, you’ll want to verify that they have an active, legitimate website and that their content aligns with your products or services. This can reduce the risk of a bad actor making their way in undetected.
Even once you approve of an affiliate, it’s important to communicate your terms and conditions. Having a lawyer look over your policies can help you ensure that there’s no room for error or potential loopholes that could lead to affiliate fraud or abuse.
2. Monitor Traffic and Program Analytics
It is almost impossible to miss fishy activities like multiple clicks attributed to a single IP address when you closely monitor traffic sources and other analytics in your campaign.
By regularly and closely tracking your affiliate marketing analytics, you’re better positioned to identify a sudden surge in traffic or a concerning influx of redirect pages.
Fortunately, there are many plugins you could activate to do this for you. Also, because these plugins integrate seamlessly with WordPress, you won’t have to worry about juggling multiple platforms and tools. All the insight you’ll need will be accessible from one place.
3. Block Suspicious IP Addresses and Remove Unethical Affiliates
Mistakes always happen, so not every suspicious activity means you have a criminal waiting to scam you, but it’s always wiser to avoid these mistakes entirely, so if a single affiliate continuously violates your terms and conditions or demonstrates suspicious activity, it is best to let them go.
You don’t want to risk compromising your entire affiliate program or losing out on profits due to one careless or malicious affiliate.
4. Use a Fraud Prevention Platform
Metricks is fully built with a strong security system that flags suspicious activity before you payout. The greatest benefit is that you don’t have to second guess every single commission you send out. Instead, you get peace of mind.
Final Words on How to Prevent Affiliate Fraud
According to Juniper, advertisers’ total loss to fraud will rise to $100 billion by 2023. You can prevent this from happening by monitoring your affiliate program very closely.
To detect fraudulent affiliates, you must log the quality of the traffic they bring to your website. It’s important to keep track not only of your conversion rates but also of typical user behaviour. Monitoring data points relating to user behaviour allows you to flag suspicious traffic that comes from affiliate fraud.
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Henry is a marketing and communications specialist. He enjoys helping individuals and brands find answers to their marketing questions. He has spent the majority of his career in the SaaS industry, gaining experiences in areas such as corporate communications, digital marketing, branding, and community building.
Henry currently serves as the head of product marketing and comms at Metricks.