Affiliate fraud is growing at breakneck speed, rendering unprofitable businesses that cannot live up to the latest fraud security standards. While affiliate marketing remains a golden goose for all involved parties – affiliates, advertisers, and affiliate networks – these are the latter who are staring down the gun barrel, and for a reason.
Not only must affiliate networks ensure fraud-free business for affiliates and advertisers, but also lure them with a superior value proposition. Unfortunately, affiliate fraud often gets in the way, wrecking even the biggest marketing ships like Amazon, Uber, and eBay.
Echoing the ever-increasing digital ads fraud – check the rise of ad fraud on Statista – affiliate fraud is hanging over affiliate networks like a sword of Damocles. Either you guarantee a healthy business environment for affiliates and advertisers, or you crumble. In practice, it means implementing cutting-edge fraud detection and affiliate compliance algorithms within your network.
Perfunctory affiliate program supervision won’t cut it – you must dig deep into affiliate data to nip affiliate fraud in the bud. For that, you need two components:
Without further ado, let’s take a walk through an unpleasant realm of affiliate fraud and see how you can mitigate risks and ensure compliance for your affiliate network.
Uncover the multiverse of affiliate marketing in this comprehensive 33-minute read.
Affiliate fraud demolishes affiliate networks like a wrecking ball, causing unrecoverable financial and – most of all – reputational damage. If your affiliates cheat, there’s only one way to protect your business: remove these affiliates from the network.
| Drained Budgets | Focused on receiving undeserved commissions, fraudsters drain advertisers’ budgets while providing little to no value in return. As a result, advertisers cannot break even, let alone grow their bottom line, losing faith in their affiliate network. With digital ad fraud alone costing an arm and a leg to victims – around $100 billion in 2023, according to Statista – very few advertisers are willing to splurge on untested marketing methods, when they cannot be sure their investment will pay off. |
| Misplaced Attribution | Not only does affiliate fraud drain budgets, but it also distorts attribution, assigning customers to the wrong affiliates. Unable to track your affiliates properly, you can’t develop effective marketing strategies and maximize your ROI. |
| Reputational Damage | Precarious affiliate networks are losing their ranks like never before. Walking on thin ice all the time is too burdensome for advertisers – they’d rather seek an alternative network than accept multidimensional risks. |
| Compliance Issues | Using stolen information to generate call leads, fraudulent affiliates may expose you to the Telephone Consumer Protection Act violation with all ensuing consequences. |
Scourged with fraud, an affiliate network dies slowly like a fly in the spider’s web unless it quickly cleanses itself off untrustworthy affiliates and implements robust fraud protection measures. But before you can do something about it, you must know your enemy.
Source: Anura
To help you gauge the effectiveness of your fraud prevention measures, we’ve introduced a brand-new tool: the Marketing Fraud Prevention Proficiency Quiz.
As leads remain the marketing Mount Rushmore, your Pay Per Lead affiliate program – or any other lead-reliant program you run – must ensure an unceasing influx of leads and a decent conversion rate: around 2.5% for e-commerce. For that, you must eliminate or at least mitigate the scourge of affiliate marketing – lead fraud.
Lead fraud takes many forms, the most common of which is misrepresenting how leads were collected or who they really are. Fraudsters are eager to exploit everything and everyone, from advertisers to affiliate networks to customers who unknowingly expose their personal details.
| Fake Leads | As detectable as fake leads may seem, they mask themselves by simulating engagement, submissions, clicks, and installations from fake leads. Most affiliate networks never know which lead is fake unless they’ve spotted the overall decline in the performance of a particular affiliate. |
| Misleading Offer | Unscrupulous affiliates love to exploit buyer psychology by misrepresenting the advertiser’s offer. For example, they may add non-existing incentives, cut the price, or create FOMO that has nothing to do with the real offer. Most deceptions are revealed too late – if revealed at all – when the money is gone. Read Indeed’s guide on understanding buyer psychology. |
| Recycled Leads | While affiliates can legally sell shared leads under full disclosure, some secretly resell their leads, especially low-intent or irrelevant leads. Presented as new customers, repurposed leads bring little to no profits while triggering a regular reward. |
| Farmed Leads | Lead fraud has come to the length that there are full-scale lead farms that produce fraudulent leads and exchange favors. Such farms share expertise and develop sophisticated strategies to avoid detection, posing a significant challenge to affiliate networks. |
| Mixed Leads | Resourceful fraudsters often mix genuine leads – bought from legitimate publishers – with fraudulent leads within the compliance threshold. Executed within the admissible margin, lead mixing is almost impossible to spot because low-quality leads are perceived as a part of the game. |
Lead gen fraud is detrimental, if not deadly, for it drains the budget and leads to an unrecoverable loss of credibility. Having sustained heavy reputational damage, compromised affiliate networks may never come back and even face compliance and legal issues.
Want to know more about lead generation fraud? Learn how lead gen fraud affects brands and consumers.
While the result of spotting lead gen fraud is clear – banishing the bad actor from the affiliate network – the detection algorithm may vary depending on your technical capabilities and the affiliates you unite. Like any fraud, lead fraud is tied to money, making abnormal marketing and sales a surefire fraud indicator.
To protect from lead gen fraud, you need a complex set of measures for lead tracking, distribution, and analytics. In other words, you need to know your affiliates and their customers in the first place.
Click fraud involves generating paying clicks through bots, click farms, and scripts, making them appear genuine while snatching the commission. In the affiliate marketing industry, around 14% of all clicks – data from ClickCease – come from non-genuine sources, with 90% of all PPC ad campaigns affected by click fraud.
Click fraud undermines the integrity of an affiliate network by rendering click data unreliable and ineffective. In the worst-case scenario, click fraud drains an advertiser’s budget, driving a wedge between them and their affiliate network.
| Abnormal CTR | A significant deviation from a normal CTR can be a sign of click fraud, when users enter the website only to leave it quickly. Likewise, unprovoked fluctuations in CTR and a disproportion between CTRs across marketing channels may also signify affiliate fraud. |
| Short sessions | Lack of engagement from referrals coming from an affiliate, especially when other affiliates perform well, may also point to click fraud. Genuine users tend to explore a website before leaving, whereas irrelevant users or bots leave a website instantly or without interaction. |
| High bounce rate | With an optimal bounce rate of around 20% to 40% – an estimate by HubSpot – anything over 70% is a red flag. Even if the cause isn’t affiliate fraud, a high bounce rate is worth exploring and countering. |
To shield your affiliate network from click fraud, you need a set of overlapping measures:
Today’s affiliate tracking software offers a coherent fraud prevention ecosystem around marketing data, customer behavior patterns, and other AI-driven capabilities.
Wonder how to improve attribution and maximize profit with affiliate marketing software? Here’s everything you need to know.
Click injection is a more sophisticated yet no less detrimental affiliate fraud technology that results in wrong attribution and payouts.
Learn to tie affiliate marketing outcomes to actual results.
Here’s how click injection works:
To protect from click injection, the same set of overlapping measures applies (see click fraud).
Cookie stuffing has been all the rage among black hat affiliate marketers for quite a while and still hasn’t lost its destructive power.
The only way to sever the fraudster-user connection is to delete cookies. This, however, rarely happens since most users are unaware of the abuse.
| Pixel stuffing | Placing a single-pixel cookie-stuffed affiliate ad on a webpage |
| Image stuffing | Stuffing cookies into images on third-party websites |
| Banner ads stuffing | Stuffing cookies into banners on third-party websites |
| Link stuffing | Placing a disguised click-triggering link on a website (the click happens automatically upon the webpage load) |
Source: HowToFix.Guide
Like most types of affiliate fraud, cookie stuffing causes an increase in affiliate program spending without a proportional increase in sales. To combat cookie stuffing, you need affiliate tracking software that can reveal affiliate fraud patterns, carry out cookie integrity checks, and verify attribution without delay, among other fraud detection measures.
Willing to practice clear affiliate marketing from the get-go? Learn what you need to become a successful affiliate marketer in 2023 without breaking the law.
Ad stacking implies abusing overlapping ads to maximize revenue from impressions.
Here’s how ad stacking works:
On the customer’s side, ad stacking goes unnoticed unless ads are rotated (each visit, a new ad from the stack is displayed).
Source: Edgemesh
Important: Ad stacking isn’t always considered affiliate fraud. If an affiliate rotates high-quality and relevant banners, ad stacking may increase engagement while testing which ads draw attention. If, however, stacked ads are of little value or an affiliate hasn’t disclosed this borderline strategy, you may want to examine the affiliate.
The best way to prevent ad stacking is by implementing ad-placing policies and integrating technical solutions that limit the number of ads placed or displayed within a given timeframe. As an additional measure, you can spot-check the quality and relevance of ads used in your affiliate campaigns.
Although ad stacking is not affiliate fraud per se, preventing or at least regulating ads can help you maintain the integrity of your affiliate network and encourage fair marketing practices among affiliates.
Trademarked search terms, or trademarked keywords, are phrases closely associated with a specific company and legally prohibited from exploitation by third-party businesses. In other words, affiliates are not allowed to promote products under branded keywords like, for example, “iPhone.”
Not only does trademark bidding raise legal concerns, but it’s ethically bankrupt. If displayed a misleading ad, a customer is more likely not to follow through, benefiting neither the trademark owner nor the exploiter.
| PPC advertising | Bidding on a trademarked search term in a PPC campaign may move a fraudulent ad above its original version. Next, users are redirected to the wrong website, some of which make a purchase. |
| SEO | Promoting specific branded keywords in organic search – for example, LSI and long-tail keywords – may rank the fraudster higher than the trademark owner. |
| Domain squatting | Creating websites, landing pages, and other resources with lookalike domains – for example, Coca-ColaForFree.com – can steal users searching for the respective trademarked terms. Domain fraud may include:
|
| Display ads | Display ads are a popular strategy to bite some traffic off the brand. Moreover, display ads include a targeting option to display them to specific locations, demographics, and during selected hours. |
| Location and time-based targeting | One of the most sophisticated types of affiliate fraud, reverse IP geo-targeting allows displaying ads in particular locations and time zones. For example, if an affiliate knows a trademark owner is offline during nighttime, they can operate to night-time users to avoid getting caught. Likewise, fraudsters can appeal to demographics and psychographics who are less likely to file complaints. |
To prevent trademark bidding, consider doing the following:
As for IP targeting, you can manually check the ads returned for specific search requests at a specific time and location. For example, to verify whether your affiliates abuse the “Coca-Cola Los Angeles” search query, switch to a Los Angeles IP address in your VPN or change the preferred location in Google settings.
Real-time ads trade within affiliate markets is becoming increasingly popular for its high targeting precision, enhanced reach, unlimited scalability, and – possibly – transparency and improved fraud prevention. The latter, though, is not always achievable due to ever-evolving programmatic fraud techniques like domain spoofing, click injection, ad stacking, and more.
Exploiting the complexities of real-time lead trade, fraudsters manipulate ad placement, sell inorganic traffic, and refer to all too familiar dirty tricks to deceive advertisers and affiliate networks. With everything happening within seconds, the only viable way to shield your network from programmatic fraud is by constantly updating your anti-fraud software and implementing the standard measures mentioned earlier.
Speaking of anti-fraud software, one way to safeguard your affiliate network is to implement a certified fraud shield like Anura. Marking fraud with 100% confidence and no false positives, Anura detects 2.5 times more fraud than competitors across over 800 data points, issuing definitive results like Good, Bad, or Warning.
BREAKING: Phonexa has partnered with Anura to protect you from ad fraud. Explore the synergy.
Source: Anura
Wondering how much is ad fraud costing you? Use this free online ad fraud calculator.
As affiliate fraud detection technologies evolve, so do affiliate crooks. Not only do they mask affiliate fraud, but they also try to distance themselves from it through disposable domains and fake websites.
URL distancing works as follows:
In URL distancing, scammers focus on developing effective analytics criteria, such as checking their IP address, the referring URL, and – in the past – their browsing history. The gist of the verification is to sieve out irrelevant customers and legal authorities. Displaying a fraudulent link to an affiliate manager, merchant, or regulator usually results in exclusion from the affiliate program and sometimes legal proceedings.
Source: Warren Dow
As the arms race continues, old technologies go out of fashion while new technologies emerge. For example, the famous CSS history hack is no longer around, making accessing a referral’s browsing history impossible in modern browsers.
There’s no better security measure than validating affiliates before you accept them. Remember, you don’t need just any affiliates but successful ones that respect the rule of law. Screening applicants will ensure quality, trust, compliance, and security for your network.
Discover everything you need to know about affiliate marketing compliance from Phonexa’s President, David Gasparyan.
No matter how much time you spend on verification – even if you verify affiliates manually – it’s still better than auto-approve. There’s no way around it: let them off the hook once, and they may damage your network to the point of no return.
No one guarantees that even screened affiliates will remain law-abiding forever. Whether you like it or not, there’s no other way to keep your network integer than tracking your affiliates through and through.
Automated lead tracking systems like LMS Sync will give you a bird’s-eye view of your business from a single dashboard. You will know where to focus your energy and resources while ensuring a fulfilling customer journey to referrals.
Besides LMS Sync, you can leverage behavior analytics in your affiliate marketing. Solutions like HitMetrix will evaluate your campaigns in real time across multiple parameters – clicks, taps, scrolls, views, and more – to grant you actionable insights into customer behavior.
You can’t verify hundreds and thousands of affiliates manually. As your network grows, you need automated screening and fraud detection to protect your network and advertisers from affiliate fraud.
There are quite a few standalone affiliate fraud detection tools out there, but it might be better to go for affiliate software with built-in affiliate fraud detection in the first place. For example, Phonexa’s comprehensive affiliate software suite will prevent affiliate fraud across email, web, call, mobile, and SMS marketing.
For those willing to go the extra mile to protect their affiliate network, you can integrate Phonexa’s affiliate software suite with a state-of-the-art fraud shield like Anura. Whether bots, human fraud, or malware, the impregnable Phonexa-Anura double protection will keep your network clean as a whistle.
Here are the instructions on how to integrate Anura with Phonexa.
No one has a crystal ball to predict the future, but you can get closer to it with predictive modeling, which simulates a marketing campaign by changing parameters until you have a desired outcome.
Predictive modeling will give you an almost unfair advantage, exposing marketing gaps and revealing untapped revenue streams. As a result, you will know where your business goes and how to get there.
You can’t become an affiliate marketing vigilante but must fight affiliate fraud within national and global laws and regulations. Adherence to recognized rules will establish you as a reliable and trustworthy player, help you mitigate affiliate fraud, and increase the quality of your affiliate program. Above all, it will guarantee you avoid legal claims.
| Federal Trade Commission (FTC) | National-scale advertising and affiliate marketing |
| Generate Data Protection Regulation (GDPR) | Personal data management within the European Union (EU) and the European Economic Area (EEA) |
| Payment Card Industry Data Security Standard (PCI DSS) | Global payment card networks, such as Mastercard, Visa, American Express, JCB, etc. |
| CAN-SPAM Act | Commercial email communications, including information accuracy, sensitive topics, and opt-out mechanisms |
| California Consumer Privacy Act (CCPA) | California data privacy laws, such as providing users with notice and opt-outs |
Intellectual property rights:
| Copyrights, trademarks, patents, industrial design, trade secrets, and other intellectual property rights on a national and international level |
You will likely have to comply with several rule sets, especially if your business model involves non-residents. European affiliate networks must comply with PCI DSS and GDPR, whereas USA-based networks must comply with state-specific consumer protection rules on top of national regulations.
There are many facets to affiliate policy compliance, one of which concerns customer privacy. According to Statista, not only do customers think online companies underdeliver when it comes to personal data privacy, but 70% of them take proactive measures to protect their personal information.
Affiliate policy monitoring and compliance can instill a sense of safety so wanted in the near-transparent digital environment. Your affiliates will stick to white-hat affiliate marketing techniques, whereas their referrals will connect to the sought-after product faster.
Source: Statista
| Initial Screening | Initial affiliate screening includes a background check, quality check, adherence to regulatory requirements, and other measures. Thorough initial screening will allow you to sieve out deceptive and unethical affiliates before they damage your affiliate network. |
| Compliance Screening | Compliance screening will ensure your affiliates follow all relevant compliance regulations, such as FTC and GDPR. |
| Affiliate Fraud Detection | Multiple affiliate rules monitoring mechanisms will prevent and timely reveal affiliate fraud, eliminating unprofessional affiliates from the network. Establishing anomalies in clicks, conversions, and payouts will protect your reputation and increase trust. |
| Training and Education | Affiliate informing and education are popular affiliate marketing requirements within affiliate marketing compliance regulations. Compliance awareness will allow your affiliates to create quality content while staying on the legal side of the fence. |
| Non-Compliance Reporting | Affiliate compliance regulations envision mechanisms for reporting suspicious activities for all network participants. You get a ready-made reporting algorithm that establishes what, how, and when your affiliates must report. |
| Mandatory Audits | With mandatory audits stipulated in your affiliate agreement, you won’t have trouble auditing your affiliates to reveal compliance gaps, improve disclosure practices, and swiftly address non-compliance issues. |
| Non-Compliance Penalties | Clear terms and conditions around non-compliance penalties will deter affiliates from unethical practices. |
The mentioned affiliate compliance components are neither exhaustive nor established exclusively by a single entity. You often face a unique set of national, state, and network requirements shaping your particular business case.
To understand whether you need in-house or SaaS affiliate marketing software, you must weigh all the pros and cons of each option as well as your budget, scale, and technical capabilities. See the table below.
| In-House Affiliate Software | SaaS Affiliate Software | |
| Implementation | Requires deep expertise in deployment within an in-house ecosystem. | Implemented by the provider |
| Management | Managed in-house without external help | Managed by the provider |
| Integration | Requires effort and resources to integrate with other systems, especially for integrations overlooked at the implementation stage | Integrates with most affiliate management and CRM platforms and affiliate marketing tools |
| Scalability | An increase in the processing capacity requires extra effort and resources | An increase in the processing capacity requires upgrading the subscription plan |
| Customization | Can be customized however you see fit when developing and after | Customization limits are set by the provider |
| Fraud Protection | Ensured by design and integration with third-party affiliate fraud protection software | Combines built-in affiliate fraud protection algorithms with third-party integrations to create an impregnable anti-fraud shield |
| Compliance | Requires ongoing affiliate agreement monitoring and updating | Handled by the provider |
| Cost | Up to $500,000 for a comprehensive affiliate software suite, plus regular maintenance costs | $100 to $500 per month, depending on the features of a particular SaaS affiliate software suite |
Without a doubt, SaaS affiliate software is superior to its in-house analog across most dimensions, especially pricing and compliance. Developing an in-house affiliate marketing software suite may cost you up to half a million dollars, the equivalent of a 5,000-month subscription price for a similar cloud solution.
To add insult to injury, in-house solutions are compliance-resistant from a technical standpoint. You must hire a lawyer, educate your steam, and streamline processes within your company, all entailing exorbitant costs. On the contrary, SaaS affiliate software is compliant “as is,” with no need for extra expenses.
Phonexa offers something unique to SaaS software providers – a compliant affiliate marketing software suite that integrates with eight other marketing automation solutions for email, web, call, and SMS marketing. You get an all-encompassing marketing ecosystem that covers your business through and through, including affiliate marketing.
Phonexa’s industry-leading security and high redundancy – backed by SOC 2 Type 1 and Type 2 certification – will ensure that your affiliate network never suffers from affiliate fraud, loses compliance, or faces legal claims.
Revolutionize your affiliate network with a state-of-the-art affiliate marketing software suite, or schedule a consultation to learn more about Phonexa.
Affiliate fraud is illegal activities aimed at getting unfair revenue using adware, malware, cookie stuffing, fake leads, domain squatting, commission theft, coupon fraud, and more. From Amazon to Uber to eBay, many renowned companies suffer from affiliate fraud, losing millions to increasingly sophisticated fraud techniques.
Source: Influencermarketinghub
Affiliate marketing is a legitimate business model in which advertisers pay affiliates to promote their products or services. That said, affiliate marketing is not deprived of fraud: according to the Affiliate Marketing Benchmark Report from Influencer Marketing Hub, 67% of respondents are concerned about affiliate fraud, whereas 69.1% have experienced affiliate fraud at least once in their career. Likewise, global digital advertising fraud costs have skyrocketed from $35 billion in 2018 to $100 billion in 2023.
Affiliate compliance is the adherence of affiliates, advertisers, and affiliate networks to the rules and guidelines set forth by the Federal Trade Commission (FTC), State Attorneys General, Electronic Retailing Self-Regulation Program (ERSP), Performance Marketing Association (PMA), and regulatory bodies.
Affiliate networks and affiliate program managers can set their own requirements for affiliates and advertisers, such as requirements around content, advertising, trademarks, promotional methods, targeting, data privacy, and more.
An affiliate policy violation, affiliate program violation, or affiliate contract violation is a breach of the affiliate agreement and/or the rules set forth by national or state regulatory bodies. An affiliate rules violation may include trademark bidding, prohibited promotional methods, non-compliance with geographical restrictions, cookie stuffing, etc.
Cookie stuffing is inserting a cookie onto a user’s device without consent. Cookie stuffing leads to false attribution when a purchase counts toward a fraudulent affiliate. Most affiliate networks set strict regulations to prevent cookie stuffing, such as fraud detection algorithms, conversion analytics, traffic quality checks, etc.
What is shopping deals adware?
Shopping deals adware is malicious software or a browser extension that infiltrates a user’s device to bombard the user with unwanted advertisements: pop-ups, banners, text links, discount overlays, etc. More often than not, shopping deals adware doesn’t result in increased sales but rather a loss of brand reputation and revenue in the long run.
The most effective way to avoid affiliate marketing fraud is to verify new affiliates, implement strict compliance guidelines, audit affiliates, and run affiliate marketing software that automatically screens affiliates for you.
Check Phonexa compliance and certifications here.
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