Credit Credo: Beat Affiliate Fraud

Cathy Beardsley

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.

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.

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:


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.


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.


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.


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