06 Types of Affiliate Fraud and How to Prevent It?

Affiliate fraud is when members take advantages of an affiliate marketing programs to get unfair commissions. It can hurt businesses and waste money. Here are types of affiliate marketing fraud & its popularity:

1. Cookie Stuffing
2. Click Fraud
3. Fake Leads
4. Ad Hijacking
5. Affiliate Spoofing
6. Brand Bidding

06 types of risks above are the most common frauds in affiliate marketing. However, as an affiliate program bring you both advantages and hardships, understanding both sides is necessary.

1. Cookie Stuffing

Imagine this: Sarah is sticking flyers on people’s backpack in the street that say, “Sarah sent you to John’s Cafe.” If any of the people who get sticked by Sarah visit John’s Cafe, John might see the flyer and think Sarah referred them.

John ends up paying Sarah a commission.

In this way, Sarah deceives John and takes advantage of customers.

Click fraud is the digital version of this trick.

Cookie stuffing happens when a fraudster places tracking cookies on a user’s computer without their knowledge. Imagine surfing a website. Unknown to you, a fraudster’s code secretly adds cookies (it is like a small data file) to your browser. Later, when you make a purchase on a different site where the fraudster is an affiliate, they get a commission, even though they didn’t really refer you.

Over 30% of affiliate fraud cases involve cookie stuffing, making it the most common affiliate fraud.

Cookie Stuffing Example: Ebay Case

In 2008, eBay sued a group of affiliates for cookie stuffing. The affiliates had used software to automatically generate fake clicks, placing eBay cookies on users’ browsers without their consent. This led to eBay paying out millions in fraudulent commissions before the scheme was uncovered.

How Fraudsters can Secretly Add Tracking Cookies?

In all these methods, fraudsters trick you into clicking on something. This action secretly installs tracking tools on your device.

1. Malicious Websites or Ads: You might visit a website that looks normal but has been compromised or is malicious. This website can automatically place tracking cookies on your device.
2. Phishing: You receive an email or message that looks like it’s from a trusted source. When you click on a link in the message, it takes you to a website that adds tracking cookies to your device.
3. Bundled Software: Sometimes, when you download free software, it comes bundled with unwanted programs that can add tracking cookies to your device.

2. Click Fraud

Click fraud is a form of online fraud where the number of clicks on pay-per-click (PPC) ads is artificially increased. The goal is to either make money for the fraudster or waste the advertiser’s budget without delivering any value. Fraudsters can do this manually or with automated software called click bots.

This fraud typically happened in the PPC affiliate marketing campaign. Affiliates earn money for per thousand of clicks. Fraudsters create fake clicks to take money from the advertiser’s budget for themselves.

This fraud is sometime conducted by jealous competitors. A click fraud can use up a rival’s ad budget, leading to the ads stop showing. This lowers their competitor’s visibility unfairly.

PPC detection and prevention is so complex. Therefore, not many affiliates software supporting PPC affiliate marketing campaign.

Click Fraud Example: Google Case

In 2016, Google took legal action against companies involved in a click fraud scheme that cost them millions of dollars. The fraudsters had created networks of fake websites and used automated bots to generate fake clicks on Google’s PPC ads. This legal action highlighted the severity of click fraud and Google’s commitment to combating it.

How Fraudsters carry out Click Frauds?

Fraudsters carry out click fraud in several ways:

• Manual Clicking: They manually click on ads themselves or hire others to do so. But now nobody does it anymore.
• Click Bots: They use automated software (click bots) to generate fake clicks on ads.
• Click Farms: They employ networks of people (click farms) to click on ads, often in developing countries where labor costs are lower.
• IP Spoofing: They manipulate IP addresses to make it appear that clicks are coming from different locations.

3. Fake leads

Fake leads occur when fraudsters submit false names, emails, or phone numbers to get paid for “leads” that aren’t real. The profile information is submitted by fraudsters who aim to earn commissions without generating genuine interest.

Shockingly, on average, 22% of all leads are collected is fake – the number might be volatile based on industry. This led to financial losses and wasted resources.

Fake Leads Example: The $1 Million Loss

A company discovered that 40% of their leads from one affiliate were fake, resulting in a loss of $1 million. This discovery highlighted the severity of the issue and underscored the importance of verifying lead authenticity.

How Fraudsters Submit Fake Leads?

Fraudsters use various methods to generate and submit fake leads:

• Fake Information: They submit false names, emails, or phone numbers to appear as genuine leads, earning commissions without providing real prospects.
• Automated Bots: Fraudsters deploy bots to fill out lead forms automatically, creating a large number of fake submissions in a short time.
• Lead Farms: Groups of individuals are hired to manually submit fake leads, making the process appear more legitimate.
• Phishing: Fraudsters use deceptive emails or messages to trick individuals into providing their contact information, which is then submitted as fake leads.

Understanding and addressing fake leads is crucial for maintaining the integrity of affiliate marketing and ensuring businesses only pay for genuine prospects.

4. Ads Hijacking

Jane sees a billboard advertising a popular restaurant. She decides to follow the directions on the billboard but ends up at a different restaurant that looks similar. The new restaurant is pretending to be the one advertised, stealing the customers.

In the digital world, this trick is known as ad hijacking.

Ad hijacking happens when fraudsters steal traffic from legitimate ads by pretending to be the advertiser, redirecting users to their site. Imagine you’re clicking on an online ad for your favorite store. Right then, the fraudsters have directed you to their site, pretending to be the original one.

Ad hijacking affects 15% of online ads, resulting in significant financial losses and damaging the credibility of online advertising.

Ad Hijacking Example: The $500,000 Loss

In 2018, a major retailer discovered that a fraudster was hijacking their ads, causing them to lose $500,000. This incident highlighted the pervasive nature of ad hijacking and the importance of securing online ads.

How Fraudsters Hijack Ads?

Fraudsters use several techniques to hijack online ads:

• URL Redirection: They manipulate ad URLs to redirect users to their sites, making it appear as though the legitimate ad directed the traffic.
• Impersonating Advertisers: Fraudsters create ads that closely mimic those of legitimate advertisers, tricking users into clicking on their fraudulent ads.
• Malicious Code: By embedding malicious code into websites or ads, fraudsters can intercept clicks and redirect users to their sites without their knowledge.
• Phishing: Fraudsters use deceptive ads or emails to trick users into clicking on links that lead to hijacked sites.

Understanding and addressing ad hijacking is essential for maintaining the integrity of affiliate marketing and ensuring that businesses only pay for genuine traffic.

5. Affiliate Spoofing

Basically, affiliate spoofing is when fraudsters pretend to be real affiliates & take their commission.

The fraudsters can copy affiliates’ information to steal commissions. Imagine running a successful affiliate program and suddenly noticing a drop in revenue. Little do you know that a scammer has copied your top affiliate partner’s details and is draining them of their commissions.

This tactic required deep understanding of the affiliate marketing system, and sometime hacking skill.

Affiliate spoofing accounted for 18% of all affiliate fraud in 2022, causing significant financial damage and eroding trust within the affiliate marketing ecosystem.

Affiliate Spoofing Example: The $200,000 Loss

In 2020, a company discovered that a fraudster was spoofing their top affiliate, costing them $200,000. This incident underscored the importance of vigilance and verification in managing affiliate programs.

How Fraudsters Spoof Affiliates?

Fraudsters use various methods to spoof affiliates and steal commissions:

• Copying Information: They duplicate the identifying details of successful affiliates, such as affiliate IDs and tracking codes, to divert commissions.
• Creating Fake Profiles: Fraudsters create fake profiles that closely mimic legitimate affiliates, making it difficult to distinguish between real and fake affiliates.
• Intercepting Traffic: By intercepting web traffic meant for legitimate affiliates, fraudsters can redirect users to their sites, capturing the commission.
• Using Malware: Malware can be used to alter affiliate links, ensuring that commissions are redirected to the fraudster instead of the legitimate affiliate.

Understanding and addressing affiliate spoofing is crucial for maintaining the integrity of affiliate marketing and ensuring that businesses reward the right partners.

6. Brand Bidding

Brand bidding occurs when fraudsters bid on brand keywords in search ads, diverting traffic meant for the actual brand. Imagine you’re searching online for your favorite clothing brand. Unknown to you, a fraudster has bid on the brand’s keywords and their ad appears at the top of the search results, directing you to a different website.

Shockingly, 25% of brand keyword bids come from fraudsters, leading to significant revenue losses and damaging brand reputation.

Brand Bidding Example: The $1.5 Million Loss

In 2017, a well-known brand discovered that affiliates were bidding on their keywords, resulting in a loss of $1.5 million. This incident highlighted the extensive financial impact and the need for stringent monitoring of search ad campaigns.

How Fraudsters Bid on Brand Keywords?

Fraudsters employ various techniques to bid on brand keywords and divert traffic:

• Search Ad Manipulation: They place bids on brand-specific keywords, ensuring their ads appear at the top of search results, drawing traffic away from the legitimate brand.
• Mimicking Brand Ads: Fraudsters create ads that closely resemble the brand’s official ads, making it difficult for users to distinguish between them.
• Using Negative SEO: They employ negative SEO tactics to lower the ranking of the brand’s legitimate ads, making their fraudulent ads more prominent.
• Phishing: Fraudsters use deceptive ads that mimic the brand, tricking users into clicking and being redirected to their sites.

Understanding and addressing brand bidding is essential for protecting the integrity of a brand and ensuring that search ad traffic benefits the rightful owner.

Affiliate Frauds: FAQs

How to prevent Affiliate Fraud?

Have you ever wondered how companies catch people messing with their affiliate links? Here’s what they look for:

Signs of Affiliate Fraud

Companies keep an eye out for signs that something fishy might be going on with their affiliate programs. Here are some red flags:

1. Unusual traffic patterns: Websites suddenly get a surge of strange visitors or bots clicking around. This abnormal activity raises suspicions of affiliate fraud.
2. High bounce rates: It’s like guests leaving a party right after arriving. High bounce rates indicate that visitors click on links but quickly leave without exploring further.
3. Low conversion rates: Imagine a store where hardly anyone buys anything. Low conversion rates suggest that visitors aren’t turning into customers, hinting at potential issues with referral activities.

Preventing Affiliate Fraud

Now, let’s delve into how companies proactively prevent sneaky activities before they cause problems:

1. Use fraud detection tools: Companies deploy specialized tools designed to detect abnormal online behaviors, such as sudden spikes in clicks from the same source. Many affiliate softwares also offer fraud detection features.
2. Monitoring affiliate activity: Similar to keeping an eye on what your friends are up to, companies closely monitor their affiliates. They verify if the referrals align with expected patterns to ensure affiliate compliance.
3. Briefing affiliate terms and conditions: Most affiliates don’t read T&C (it makes sense, T&C is like 30 pages full of legal terms). A clear summary of permissible practices & illustration might be much more helpful for them.
4. Conducting regular audits: Just like giving your bike a check-up, regular audits help companies ensure everything runs smoothly and identify any suspicious activities early on.
5. Educating your affiliates: Knowledge is power. Companies educate their affiliates on ethical promotion practices and how to avoid shady tactics. Educated affiliates build trust and maintain honesty in affiliate marketing.

Wrap it up

Throughout these measures, companies focus on those thing to prevent affiliate frauds:

• Click fraud detection tools to identify unusual traffic.
• Conversion rate optimization to enhance affiliate program efficiency.
• Monitoring affiliate activity closely to maintain compliance.
• Conducting audits to ensure program integrity.
• Educating affiliates about ethical marketing practices.

By staying proactive and implementing these strategies, companies safeguard their affiliate programs from potential fraud, ensuring fairness and trust among all participants.