Affiliate Fraud Could Cost Marketers $1.4 B in 2020 Suggests New Report

Cheq suggests advertisers could lose up to $1.4 billion in affiliate fraud in 2020

Cheq, the fraud prevention platform, recently released its research on affiliate marketing ad fraud, which revealed that affiliate fraud could cost advertisers a whopping $1.4 billion in 2020. While affiliate marketing emerged as a channel that could eliminate the risks associated with traditional digital channels, it is now fraught with high risks of fraud. Hailed by The Economist as the “Holy grail of advertising”, the affiliate marketing industry stands at $15 billion in 2020.

Also read: The State of Affiliate Marketing in 2020 

Affiliate Marketing and COVID-19

Over the course of the past few months, more brands have turned to measurable channels as attribution becomes the primary measure of truth. According to the study by Cheq, Affiliate volumes rose from April 2020 across key categories like gifts and flowers (80%), computers and electronics (66%), health and beauty (41%), and sports and fitness (6%).

Affiliate revenue now represents a significant portion of some digital content creators and publishers. According to Rakuten, 42% of affiliate publishersOpens a new window reported an increase in site traffic during the pandemic.

5 Affiliate Marketing Fraud Types

Affiliate marketing fraud rates are the subject of much discussion, as fraud rates depend on the transaction type. For example, 25% of all app installs could be considered fraudulent as a result of attribution fraud.

There are five major categories of affiliate fraud types that Cheq identified:

1. Cookie stuffing: Browser cookies are the fundamental feature that enables tracking. Cookie stuffing is a process in which an affiliate will place many different cookies belonging to different advertisers (third-party cookies), in the visitor’s computer. If the visitor subsequently visits any of those advertisers’ sites and makes purchases, the affiliate will earn a commission without actually having taken part in leading the visitor to that site.
2. Attribution fraud: This type of fraud is similar to cookie fraud; the only difference being that fraudsters try to steal credit for app installs, which are not generated by them. This is an attempt to register the last engagement before the app is first launched by the user. Attribution fraud tricks the attribution platforms to associate an organic install or one created by another source to the fraudster, thus manipulating the “last-click-attribution” model commonly applied by attribution providers.
3. Typosquatting: This method is employed by fraudsters who register affiliate domains that are misspellings of merchants’ domain names. When a user misspells a merchant’s domain name in the way that the affiliate anticipated, the user will be sent to the affiliate’s site, which immediately redirects. If the user makes a purchase, the affiliate will be credited.
4. Loyalty software: In this case, affiliates place “loyalty” software on a user’s computer to remind the user about possible rebates, points, or other benefits from purchasing through certain merchants. The loyalty software automatically sends a user through an affiliate’s link when the user requests a merchant’s site directly. Often, loyalty software claims affiliate commission even if the user had never registered with the loyalty service and is incapable of claiming or receiving benefits.
5. Deceptive marketing: Sometimes, affiliates ads could be bait for a scam, according to investigations by the Federal Trade Commission (FTC). The FTC, for instance, cracked down on a low-cost trial scam placed by affiliate marketers. Here, a “free” trial offered up by affiliates ended up on a website that offered the product trial for $1.03. “That amount is not much, but it’s not free”, the FTC stated. They added: “In fact, people who bought the trial for $1.03 ended up being charged almost $200 monthly for a second product they didn’t even want”. The FTC also continues to crack down on expensive schemes promising the “secrets” behind affiliate marketing.

Also read: Beating the Fraud Guide: How To Protect Your Ads

The risk of affiliate fraud is very real for businesses and threatens to damage trust in the growing market that is beneficial for both brands and affiliates. This threatens the revenue model too. Sufficiently successful attackers could reduce the revenue for legitimate affiliate advertisers so much that the entire business model no longer works, putting both those free sites out of business and further limiting the ways in which free content can be subsidized online. This is why it is crucial that brands safeguard their affiliate investments with intelligent fraud detection technology.