Affiliate marketing fraud: the costly consequences and how to prevent them

Each day, new users are being added to business website and mobile apps, and some of them are coming via affiliate marketing initiatives. But the bigger the affiliate network, the higher your risk of being exposed to affiliate fraudsters who clog up your traffic with fake visits. And that's not doing your user experience or conversion rates any favors. Affiliate marketing fraud is a growing problem today, costing online businesses billions of dollars annually. This global fraud is a continuous threat, as new technologies help fraudsters to develop sophisticated tools to generate fake leads and conversions. This article will help you to better understand affiliate marketing fraud and how to prevent it from happening. 

Affiliate marketing fraud typically occurs in the new user acquisition stage. Online businesses use affiliate marketing to lead new users to their websites or platform. An affiliate partner is paid a commission for every sale they generate on behalf of the merchant. Fraudsters can manipulate the system by creating fake accounts, generating fake downloads, or fake bookings, depending on the industry. Deceitful digital marketers typically charge a merchant for actions that will not end up with real conversions, such as registering a user to collect a marketing bounty.

Affiliate marketing fraud can take many forms, such as:

• click fraud,
• lead fraud,
• or conversion fraud.

In all these cases, fraudsters generate fake leads or fake conversions to earn commissions. Their main tools and methods are bots, automated scripts, or click farms. They also use stolen credit card details. In an attempt to evade fraud detection algorithms, fraudsters will use fake profiles, and VPNs to hide their true location.

An event where Uber was involved is a stark reminder of the dangers of affiliate marketing fraud. In 2017, Uber sued their media agency for ad fraud, namely fake clicks and app installs. The case was dismissed, and Uber refiled the suit, where further evidence of widespread and continuing fraud came to light, including the use of fraudulent practices such as "click flooding" and "auto-redirects." Situations like this one can have a far-reaching and long-lasting negative impact on a business.

While it’s difficult to quantify precisely the true cost of affiliate marketing fraud, the potential consequences are intuitive enough to realize the potential losses. There are two sides to consider here: financial aspects and reputation. The financial impact of affiliate fraud can range from a few thousand dollars to billions per year, depending on the scale of the operations and the severity of the fraud. For example,  a study by Business of Apps revealed that the total cost of ad fraud in 2022 was 81 billion dollars, predicted to increase to 100 billion dollars this year. As well, affiliate fraud can also lead to losing new or existing consumers' trust, which by extension, affects a business’s revenue and profit. 

One emerging threat in affiliate marketing fraud is the use of sophisticated bots and automation tools that can mimic human behavior. Fraudsters use bots to simulate human-like behavior by clicking on affiliate links or creating impressions on ads. They also perform cookie stuffing or cookie dropping, a technique in which an affiliate injects their tracking cookie into a user's browser without the user's consent or knowledge. 

Bots can also be programmed to complete actions such as filling out forms, downloading apps, or even making purchases to generate fraudulent conversions. In referral programs, fraudsters may use bots to automate the creation of multiple fake user accounts. By generating numerous referrals, fraudsters can receive commissions or rewards for bringing in new users, even though these users are not genuine.

As for trends, one should be mindful of the use of mobile devices and apps to perpetrate fraud, as more and more consumers use smartphones and tablets for online shopping and other transactions. This creates a new and broader landscape for affiliate fraudsters to exploit.

It is essential to track and analyze specific user information, such as location, device type, IP address, browsing habits, and behavioral biometrics. By closely examining these data points, businesses can identify patterns that may indicate a high likelihood of fraudulent activity, such as the presence of bots or other automated processes. In addition to thoroughly analyzing user behavior and data points, machine learning is essential to process large amounts of data and learn from previous fraud incidents in real-time to uncover signs of fraud. 

And, as mentioned earlier, mobile devices have become a more significant source of affiliate traffic and conversions. This means that online businesses need to adopt a mobile-focused fraud prevention strategy by implementing mobile-native solutions and using AI-powered tools to analyze and detect unusual patterns quickly and with high precision.

Affiliate marketing fraud can go unnoticed. We have the means to prevent it before it’s too late. Get in touch with us to see how we can help by clicking on 'book a call' at the top of this page. Alternatively, you can contact Marc directly via email at marc.fessler@nethone.com or via LinkedIn.