Affiliates represent 16% of eCommerce orders, and affiliate marketing spend is forecast to soon reach $6.8 billion. Loss prevention specialist Chargebacks911 sees great potential in performance marketing but warns merchants to be wary of fraud.
(Tampa, FL) December 18, 2018 – Adobe revealed that U.S. consumers set new a new record on Cyber Monday 2018, which marked the nation’s largest-ever online shopping day at $7.9 billion.(1) Affiliate marketing represented 16% of U.S. eCommerce orders as of BI Intelligence’s last report on the channel;(2) at that rate, affiliates would have contributed nearly $1.3 billion of this year’s record-breaking Cyber Monday sales. Chargebacks911, a leading dispute mitigation and loss prevention firm, notes that affiliate-driven profitability is sparking interest among merchants and publishers alike—but may also draw more criminals to commit affiliate fraud unless the industry takes action.
Forrester Research projected U.S. affiliate marketing spend would increase at a 10% compound annual growth rate (CAGR) from 2015 to 2020, when it is expected to surpass $6.8 billion.(3) Forrester also found that 81% of advertisers and 84% of publishers include affiliate marketing as part of their overall marketing mix.(3) While affiliates’ financial contribution to this year’s record Cyber Monday sales is based on extrapolation, a recent survey confirmed that active affiliate partnerships increased between 2017 and 2018; they were up 20% on Thanksgiving, 34% on Black Friday and 15% on Cyber Monday.(4)
“In the hands of ethical, high-performing content providers and honest merchants, affiliate marketing can be extremely profitable for both parties,” observed Monica Eaton-Cardone, co-founder and Chief Operating Officer (COO) of Chargebacks911. “There’s a reason affiliate marketing continues to grow at such a rapid pace—and that’s because it works. However, that profit potential has also attracted scammers looking to game the system for personal gain, and they can decimate revenues if retailers aren’t careful.”
Eaton-Cardone says that an estimated 2% of performance-driven transactions are likely cases of affiliate fraud. While that suggests the majority of affiliates are legitimate, fraud-related losses can still add up. For example, a 2016 study found that 38.1% of Amazon’s affiliate partners engaged in fraud, with 18.2% of conversions associated with a fraudulent affiliate identifier.(5) And just last month, Bulgarian authorities arrested Russian national Alexander Zhukov based on an Interpol warrant; he was accused of affiliate fraud by U.S. prosecutors and indicted in absentia. Zhukov is accused of committing computer fraud that resulted in more than $7 million in damages.(6)
According to Eaton-Cardone, scammers use a variety of tactics to commit affiliate fraud, ranging from unethical to illegal. A few examples:
- Spam – Affiliates bombard consumers with unsolicited emails to generate clicks. This approach can tarnish a brand’s reputation.
- Typo-Squatting – Fraudsters buy domain names similar to a merchants’ own; if consumers mistype the URL, the affiliate’s site redirects and gets credit for a referral.
- Cookie-Stuffing – These web cookies stay with consumers after leaving an affiliate site, so the affiliate gets future referral credits for unrelated visits to a merchant’s site.
- Diversion and Site Cloning – Unethical affiliates may copy content or divert traffic from legitimate affiliates and merchants, stealing their leads and rightful income.
- Bot Activity – Cybercriminals often use scripts or software to imitate consumers, automatically generating clicks or even orders to boost commissions.
- Malware – Some fraudsters get visitors to download spyware or adware that injects affiliate code, while others use affiliate sites to steal consumers’ personal data.
- Identity Theft – Criminals have been known to sign up as affiliates and place bogus orders using stolen credit card data. They profit from unearned referral commissions, while the merchant is left with chargebacks and fees for the unauthorized purchases.
To combat these tactics, Eaton-Cardone advises online merchants to develop and enforce an affiliate policy that outlines unacceptable practices and their penalties. She recommends carefully vetting prospective affiliates and networks, regularly monitoring affiliates’ activities and checking out sites that generate a high volume of referrals to verify they are legitimate. In addition, she suggests buying up similar domain names before affiliate fraudsters, competitors or other cybercriminals have a chance to do so.
Eaton-Cardone also emphasizes the importance of using multi-layered fraud prevention tools, including an affiliate fraud solution that uses technology to conduct risk analysis and advanced human forensics to ensure accuracy. (In the past year, Chargebacks911’s Affiliate Fraud Shield prevented over $12 million in losses,(7) including shipping costs, product loss and chargeback fees.) Finally, she advocates for public blacklisting of known/proven affiliate fraudsters, and urges merchants to report illegal activities to the authorities.
“Merchants need to take proactive steps and work together to fight scammers; otherwise, they’ll keep siphoning profits and damaging brands,” asserted Eaton-Cardone. “By sharing details on banned affiliates and taking legal action against those suspected of data or identity theft, retailers can help rid the industry of these fraudsters. This not only prevents revenue loss, but also protects legitimate affiliate partners and valued customers.”
Chargebacks911 is committed to educating and supporting eCommerce merchants with services designed to enhance profitability, reduce chargebacks and combat fraud. To that end, Monica Eaton-Cardone and her team will be participating in a number of upcoming industry events, including Affiliate Summit West in Las Vegas and NRF 2019: Retail’s Big Show in New York City. For details on Chargebacks911’s comprehensive risk management solutions, informative articles and other merchant resources, visit https://chargebacks911.com.
About Chargebacks911/The Chargebacks Company
Chargebacks911 empowers businesses to combat constantly evolving fraud tactics and mounting customer disputes that directly threaten profitability. Operating as The Chargeback Company in Europe, Chargebacks911 has pioneered effective, industry-leading solutions designed to reduce chargeback fraud, alleviate processing costs, mitigate risk and recover revenues.
The company’s unparalleled expertise and proprietary technology have earned three consecutive CNP Customer Choice Awards for Best Chargeback Management Solution, three successive AI Lions’ Den Awards for Best Airline Industry Solution, and Gold and Silver Stevie Awards from the American Business Awards (ABA). With innovative and highly scalable services ranging from Intelligent Source Detection™ (ISD) to Tactical Representment, Chargebacks911 uncovers the true source of chargebacks, battles unjustified disputes, rescues lost revenue, safeguards reputations, and defends against relentless, ever-changing cyberthreats.
Discover why Chargebacks911 is a hero to the payments industry, nemesis of fraudsters and trusted protector of over 2.4 billion transactions per year, representing clients worldwide—visit https://www.chargebacks911.com.
- “Adobe Analytics Data Shows Cyber Monday Broke Online Sales Record With $7.9 Billion”; press release issued November 26, 2018.
- Business Insider Intelligence. “Mainstream Publishers Are Turning Performance-Based Marketing Into a ‘Fine Art’—Here’s How”; Business Insider; September 1, 2016.
- Forrester Research for Rakuten Affiliate Network. Networks Help Drive Affiliate Marketing Into the Mainstream; February 2016.
- Polizzi, Christina. “Affiliate Marketing Results From Thanksgiving, Black Friday and Cyber Monday”; Acceleration Partners blog post; December 6, 2018.
- Snyder, Peter and Chris Kanich. “Characterizing Fraud and Its Ramifications in Affiliate Marketing Networks”; Journal of Cybersecurity; December 2016.
- Stone, Jeff. “Suspected Russian Cybercriminal Arrested in Bulgaria at U.S. Request, Lawyer Says”; CyberScoop; November 15, 2018.
- “Learn How to Identify and Prevent Affiliate Fraud”; blog post; May 16, 2018.