Perils and Pitfalls of Affiliate Marketing

Cathy Beardsley

Traffic is king in e-commerce and that’s why affiliate marketing is a critical revenue driver for merchants. Effective use of affiliates allows online merchants to outsource digital marketing and to generate additional leads ultimately resulting in higher profits. However, with fraud being so prevalent in today’s e-commerce, it’s important for merchants to be aware that affiliate marketing is one of the fastest ways to introduce fraud and non-compliant activity into their business.

In today’s market, online merchants need to be proactive to prevent fraudulent activity from entering their business through affiliate marketers. Although fraud can be hard to identify, there are some best practices I’d like to share with merchants to help prevent and identify fraudulent affiliate marketing.

A consistent and organized on-boarding process is one of the easiest and most effective methods for a merchant to prevent affiliate fraud.

A consistent and organized on-boarding process is one of the easiest and most effective methods for a merchant to prevent affiliate fraud. At SegPay, we encourage our clients to “get to know” their affiliate marketers during the sign-up process. This can be done by confirming banking information, receiving a physical signature on the marketing agreement and collecting a copy of the partner’s physical identification. This small bit of due diligence can save merchants from having to pay large fees to acquirers and protect the integrity of their business.

Webmasters should also track, verify and monitor all partners in their affiliate program. By looking beyond the conversion rates of marketing partners and deeper into trackable data, merchants can uncover warning signs of fraudulent activity. We suggest regularly monitoring login rates, looking for abnormal behaviors in transaction data, inconsistencies in affiliate geo-location, large average ticket prices via rev share models and unregistered URLs. It is also important to monitor the sources for referral traffic from affiliates as well as reviewing the digital ads affiliates are using to generate traffic to merchants’ sites.

Increases in reported fraud by consumers, refunds or chargebacks on a site should be red flags. These are clear identifiers for e-commerce merchants that there might be fraudulent partners within their current marketing network. Webmasters should be able to share affiliate IDs with their payment service provider so they can also help with affiliate analytics. At SegPay, this is an ongoing service we provide free of charge to clients.

Finally, e-commerce merchants should delay payments to marketing partners. This prevents fraudulent affiliates from infiltrating a system for a few days, collecting the money and jumping ship before activity can be detected.

It’s important for webmasters to remember that the more they know about affiliate marketers up front, the lower the risk will be of introducing fraudulent affiliates to the system.

It took only three years for Cathy Beardsley to turn startup SegPay into a profitable company. As president and CEO, Beardsley oversees the day-to-day operations and long-term strategic planning for the company. SegPay is one of four companies approved by Visa USA to operate as a high-risk Internet payment service provider (IPSP) in the U.S. Since 2005, SegPay has offered online merchants a state-of-the-art billing platform that provides real-time payment processing around the globe.