The idea of making money while you sleep is undoubtedly appealing, but is it realistic? Through affiliate marketing — a tactic that lets individuals benefit from a steady stream of income while e-commerce merchants enjoy increased sales and traffic and a growing customer base — it just might be. But that doesn’t mean it’s not without risk.
The idea behind this marketing approach is simple: A company recruits affiliates to market a company’s products. In turn, the affiliate receives a portion of each sale they make. Not only is the partnership easy to implement, but it’s also becoming increasingly popular: 81% of brands are currently estimated to engage in affiliate marketing — with a projected spend of $6.8 billion by 2020.
But even with an affiliate marketer receiving up to 30% of a customer’s spend from merchants, there’s still no such thing as a free lunch. So what’s the catch? The growing spend and potentially high yields have made affiliate marketing an attractive target for fraudsters, posing a considerable risk to a growing business. Here are the affiliate fraud strategies merchants should be wary of.
While most customers identify and delete spam emails before they do any damage, all it takes for spam to perpetuate is for one unsuspecting customer to open junk email and make a purchase from a fraudster. Not only does spam cause legitimate merchants to lose sales, but when customers see the same product, brand or company appear over and over again in their Junk email box, the legitimate company is also at risk of a hit to their reputation.
Fraudsters register variations of a vendor’s web domains (e.g., amazom.com) to attract unsuspecting buyers, and then the fraudsters sign up the variations for affiliate programs. This process, called domain squatting, ends up directing traffic away from the legitimate affiliate and to the fraudster’s site. The fraudster’s site may even be a complete clone of the legitimate site — graphics and wording alike. Customers end up making their purchases at the wrong site, causing the genuine merchant to lose the sale and letting fraudster cash commissions earned by honest affiliates.
Fraudsters use software to imitate consumers’ behavior and generate false clicks, transactions and conversions on offers. Through click fraud, greedy fraudsters repeatedly click on income-generating cost-per-click links to inflate their income and, sometimes, just to cost merchants revenue. Merchants end up seeing their funds drained without realizing any sales.
Malicious Browser Extensions
Another way fraudsters cheat the affiliate system is by making browser extensions available in a browser’s “extension stores” for users to download to increase their browser’s functionality. Although the extensions generally do perform a legitimate function (like downloading videos), their true intent is to hijack legitimate users and tag them to collect affiliate and referral fees. Some extensions swap a legitimate affiliate code for their own to get credit for the sale, while others exchange ads on a website for ads of their own.
Merchants generally pay affiliate commissions fairly quickly after a sale is processed, so if a transaction was made with a stolen credit card, that could be a big problem. Here’s why. By the time the merchant learns the transaction was fraudulent — usually because the customer files a chargeback or asks for a refund — the fraudster has already received the affiliate commission and is likely long gone.
How to Stop Affiliate Fraud
Although it can be difficult to spot and stop affiliate fraud, there are some best practices merchants can implement to avoid being part of it:
- Confirming the affiliate has an active website whose content relates to their products
- Communicating regularly with affiliates to ensure they’re running a legitimate business
- Confirming the affiliate’s site is optimized for the merchant’s products
- Enable cookies to track clicks, allowing merchants to more easily identify click fraud from the same IP address
- Manually approve new affiliates
While working with legitimate affiliate programs can be lucrative for merchants and affiliates alike, merchants are also wise to implement a dynamic fraud prevention solution that can help track IP addresses, monitor affiliates and keep customers safe.
ClearSale’s unique combination of advanced artificial intelligence and highly trained staff helps ensure fraudsters don’t slip through a merchant’s defenses. Helping e-commerce merchants grow in an ever-changing online environment has been our passion for more than 15 years. Contact us today to learn how we can help you.