Home > Features > Credit Credo: Beat Affiliate Fraud • Bookmark   • Newsletters   • Register Search Options

FEATURE

Credit Credo: Beat Affiliate Fraud

Credit Credo: Beat Affiliate Fraud

January 20, 2014
Text size: 
View in Digital Mag
Get XBIZ News
XBIZ Research
Will virtual reality boost the paysite market?
Yes, it will soon
  39.66%
Yes, but in a few years
  36.87%
No
  23.46%
Out of 179 votes. Results based on votes submitted by members of XBIZ.net social network.

" The old axiom “the best defense is a strong offense” certainly holds true in this circumstance. If you are aware of the potential affiliate fraud scams that are out there, you can put programs in place to protect your business and customers. "

You have to work hard to keep your hands clean in this industry. That’s not to say that the majority of players in the adult world aren’t above the board — they are — but there is an unseen minority that leaves a lasting impact on the industry akin to an unbleachable lipstick stain on a newly starched collar.

I’m talking about affiliate fraud.

Affiliate marketing isn’t going anywhere. It’s become a staple in all forms of e-commerce from mainstream giants like Amazon to the adult entertainment industry. In truth, it’s a very efficient way to do business that increases sales, but a few lapses in security have left a bad taste in the mouth of some very influential people.

I participated in a risk meeting a few months ago that included representatives from the four major card networks. A large portion of the three day conference was geared towards affiliate fraud and the risk that affiliates enter into the payment system. When one of the senior representatives from one of the card schemes was asked what we should do to protect ourselves from affiliate fraud, her response was “Stop working with affiliates all together!”

Did that get your attention?

There are many people who would like to simply wipe the slate clean of all affiliate marketing. It would be simpler, but it wouldn’t be an effective way to do business. The industry doesn’t need to be gutted. It just needs a little bit of internal oversight. Beyond just representing solid business practices, maintaining stringent standards for managing affiliates is necessary to ensure the success of the system for everyone.

The old axiom “the best defense is a strong offense” certainly holds true in this circumstance. If you are aware of the potential affiliate fraud scams that are out there, you can put programs in place to protect your business and customers. Controlling your own destiny sure beats over-regulation from the card schemes or governments.

There are four types of affiliate fraud that have become prevalent:

HARVESTING CARD DATA

Bad affiliates often harvest card data through social media, phishing sites, fake sites, purchasing lists of cards or generating cards. The scammer then signs up as an affiliate and runs cards in hopes of earning a payout before the consumer identifies the transaction as fraud.

COLLUSION

For this model, a merchant works with the affiliate to rip off the consumer. A great example of this is the antivirus software that suddenly pops up on your screen. A message pops up saying that you have virus and you must buy the virus software in order to remove the supposed virus.

DECEPTIVE MARKETING

How many times have we seen affiliates advertising free content or content that is not what is actually being sold? Deceptive marketing is a form of fraud and can lead to excessive chargebacks and refunds.

AGGREGATION / TRANSACTION LAUNDERING

When illegal content sites that cannot obtain processing on their own create rogue payment processing pages to captures consumer information, they are conducting aggregation/transaction laundering. The illegal site owner then signs-up to a compliant cash program as an affiliate and manually enters these transactions into the compliant website’s payment page. In this model, the consumer is happy as they are provided access to the content that they want through the noncompliant website and the bad affiliate is paid out for the transaction as an affiliate through the compliant site. The problem emerges when card schemes and acquirers recognize the fraud.

You may think fraud won’t happen to you, but it can and it will if you aren’t diligent about monitoring your programs. It’s better to stop fraud before it even starts, because once the card Schemes and acquirers get involved you are looking at massive fines and potentially loss of service.

So how do you recognize and stop affiliate fraud? One word — analytics. Here are several key areas to examine to ensure that your affiliates are reputable:

  • Refund/void rate by affiliate;
  • Chargeback rate by affiliate;
  • Approval/decline rate by affiliate: If the affiliate has high approval/decline rate, there is a good chance of fraud;
  • Consumer login rates by affiliate: If consumers do not have login information, then you are likely dealing with a bad affiliate. On top of that, if transaction laundering is occurring you will never see the consumer login to your program;
  • Abnormal patterns in transaction data time; and,
  • Average ticket: If the affiliate is only promoting a large ticket price to your program, then you may be dealing with fraud.

Take some extra time up front and perform due diligence on the affiliates that you work with. It boils down to “Know Your Customer,” or KYC. As Visa EU’s May 2012 best practices document outlines, you should confirm banking data ties to principals or programs, determine the physical location of the affiliate, get a physical signature on agreements, and review affiliate traffic sources for compliance.

A little extra effort on the front end can ensure long-term success for everyone operating affiliate programs. In other words, don’t get caught with lipstick on your collar. Get your house in order.

Cathy Beardsley is a veteran of the payment processing industry and an expert on affiliate fraud detection and prevention. She is the CEO of SegPay, one of the world’s leading online payment processing companies. Upon seeing numerous unethical practices in the IPSP industry, Beardsley founded SegPay in 2005 with an innovative payment strategy that ensures her clients get paid before SegPay does. Learn more about Beardsley and SegPay at www.segpay.com


OPINIONS & VIEWS

Data Privacy Is Tightening Up in the E.U.

Have you begun preparing for GDPR? If you are like most, you haven’t even heard of GDPR, but also if you are like most, it is going to affect your business, starting May 25, 2018. The GDPR, or General... More »

Could Adult Content Be Banned?

Earlier this month, I met with the Free Speech Coalition’s board of directors for our annual review. Despite the headwinds our industry faces, politically and economically, we are, as an organization,... More »

Cutting Costs in the Spirit of Entrepreneurship

Adult website owners are comprised of two groups: One is comfortable giving up 30-50 percent of their site’s gross sales revenue (aka profit) in exchange for software, hosting and services despite... More »
XBIZ NEWSLETTERS
Stay informed of the latest industry developments. Get XBIZ newsletters delivered to your inbox. Subscribe today!
Enter email address:

* To manage existing subscriptions click here.






POPULAR PRODUCTS & SERVICES
Submit your press release to
multiple news outlets with 1 click.
Subscribe to RSS news feeds or
add free content to your website.
Access XBIZ news and articles
with your mobile device.
Subscribe to XBIZ Premiere magazine, the industry's leading adult retail trade publications, delivering the most timely and comprehensive business news and information to producers and retailers of adult products.

UPCOMING EVENTS

XBIZ Retreat

May 30 - Jun 03
Miami, Florida

XBIZ Miami 2017

May 30 - Jun 02
Miami, Florida

XShow 18+ 2017

Jun 01 - Jun 03
Moscow, Russia

Cam Summit

Jun 02 - Jun 04
Lloret de Mar, Spain
Everyday thousands of business professionals browse XBIZ's industry directory for quality products and services. Not listed yet? Your company could be losing potential new business. Submit your company today!
Use XBIZ RSS feeds to stay informed of the latest industry developments or as a content syndication tool for your website!