The Most Common Types of Affiliate Fraud: Avoiding Five Finger Discounts on Retailers’ Ad Budgets

Most marketers are familiar with the affiliate marketing model, which involves either an individual or a company earning commissions from the process of promoting the product or service of an advertiser. Affiliate marketing is having its moment, exploding in popularity in recent years. In a post-COVID world, it’s been an effective way for companies to expand their customer base and their reach simultaneously.

It’s so popular, in fact, that according to Statista, the annual marketing spending on affiliate marketing, in particular between 2010 and 2022, increased from $1.6 billion to $8.2 billion.

However, there’s also a dark side to affiliate marketing. The lucrative affiliate marketing business also draws the attention of “bad actors.” These cybercriminals are getting smarter every day and developing new, more complex tactics used to infiltrate the affiliate marketing industry. Let’s explore the dark side of affiliate marketing, more specifically, affiliate fraud.

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What is affiliate fraud?

Affiliate fraud is a type of ad fraud in which affiliates will employ illegitimate techniques to deceive affiliate programs—and they do this with the goal to collect unearned commissions. And the losses can be hefty. In fact, the average affiliate fraud attack can cost businesses as much as a whopping 20-65% in sales.

It’s been said that sunlight is the best disinfectant. This also goes for affiliate marketing fraud. The more marketers know about what it is and how “bad actors” operate, the better chance they’ll have at detecting fraud – and stopping it. The five most common types of affiliate marketing fraud, are:

• Click Fraud

Click fraud is a form of fraud involving the CPC, or cost-per-click, advertising model. What this means is that affiliates are then paid a commission that’s based on the number of clicks on the ads. Here’s where the fraud comes in. Those who are using click-fraud tactics generate a large number of false clicks either from click farms or by manually clicking on their own ads themselves.

Another more involved and sophisticated approach to doing this is by using bots. A fraudster may infect users’ devices with malware and in so doing, recruit those users into a robot network, which is also known as a botnet. The not great news is that click fraud isn’t slowing down. In fact, more than 14% of all PPC clicks are estimated to be invalid—and this means that businesses are losing up to $20 billion on a globally.

• App Install Fraud

App install fraud can also be called CPI, or cost-per-install fraud. App install fraud is an often-used type of affiliate fraud. How does it work? CPI involves paying affiliates a commission for each and every successful app install. This advertising model is very common when it comes to mobile usage. In particular, it tends to be most popular with gaming companies that are looking for more app users. Reports from Data.ai show that in 2021, businesses spent a lot—$295 billion—on their mobile ads. This is up 23% from 2020. In addition to that, they also comprise 21.07% of the market share on the Apple Store.

• Lead Fraud

Lead fraud is a type of affiliate fraud involving the manipulation the CPL (cost-per-lead) advertising model. The cost-per-lead ad model is one that allows advertisers to pay for generated leads by collecting information on consumers. Today, a whopping 84% of marketers use form submissions as a way to generate leads. How do affiliates manipulate this data? They can do it in three ways, either by using bots to submit forms or by buying a list of bad emails and then using them to prefill a list of leads. As 53% of marketers (source: Brighttalk) spend at least half of their ad budget on lead generation, lead fraud is a major source of wasted dollars.

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• Acquisition Fraud

Acquisition fraud is a type of ad fraud that incorporates the CPA, or cost-per-acquisition, advertising model. How does this work? Once a sale is fulfilled, advertisers pay these affiliates a commission. This model used to be the most secure ad model—but then, fraudulent actors found a way to break in. They’d use stolen credit cards procured online and then they’d use those credit cards to make a sale. Next, the credit card companies will issue a chargeback to the advertiser’s company. This then results in the advertiser losing money in sales, but also in marketing. The cost when it comes to chargebacks is thought to be on the rise to the tune of $117.47 billion by 2023. On a larger scale, bots tend to do most of the credit-card sourcing and finalizing of sales for fraudulent affiliates looking to commit acquisition fraud.

• Cookie Stuffing

The final type of fraud to be on the lookout for, cookie stuffing is a form of fraud that takes place when an affiliate uses different third-party cookies from various advertisers and places them in the visitor’s browser. With cookie stuffing, while advertiser or publisher (A) actually sends visitors to your store, a separate publisher (B) may get the credit for the sale thanks to someone dropping B’s cookies in the user’s browser at some point (often just by clicking a single link). By placing multiple cookies with each page view, publishers/affiliates/advertisers increase the chance that the shopper will go on to visit and buy from an affiliate paying store. What happens next? Once the user visits any of the websites with these cookies already in place for certain sites and buys something, the affiliate will then earn a commission.

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Being equipped with knowledge on common forms of affiliate fraud and being aware of how nefarious players have turned this type of fraud into a lucrative cottage industry should help marketers create strategies to protect their online businesses from falling victim to it. Not only will establishing an anti-fraud strategy protect your brand it will also prevent perpetrators from draining your marketing budget – and in the end, increase the ROI of affiliate marketing programs.