Thanks to the power of affiliate marketing, our online business was turning a steady profit in an incredibly competitive niche. We had several hot selling products, and it seemed as if everything was smooth sailing.
That is, until the day we watched the business begin to crumble.
The Repercussions of Affiliate Fraud Reach Farther than You Think
Affiliate fraud isn’t a new topic. Anyone who has considered using affiliate marketing is aware of the risks associated with the technique.
Determined fraudsters are capable of tipping the scales in their favor. We thought we understood this part of the equation – what we didn’t know was how this type of fraud could lead to chargebacks. This lesson was the most expensive education we acquired.
Chargebacks happen when the customer contacts their bank instead of the merchant for a refund, and here’s where things get nasty. If you sustain too many chargebacks in a given period, the bank can terminate your merchant account. Without a way to process payments, even the most innovative online business will fail.
Chargebacks that Result from Affiliate Fraud
Two chargeback reason codes that are often linked to affiliate fraud are “unauthorized transaction” and “products not as described or services not rendered.”
Here’s how these chargebacks can happen:
1. The deceptive affiliate obtains a batch of stolen credit card numbers and places tons of unauthorized transactions. Before the cardholders detect the fraud, you’ve already processed the transactions and paid the affiliate their commission.
Later, the cardholders rightfully dispute the charges with their bank and demand a refund.
2. The deceitful affiliate revives old-school telemarketing techniques and pulls a bait-and-switch. They make all sorts of promises—anything that will land the sale. The consumer makes the purchase, based on the affiliate’s claims that you didn’t authorize. When you aren’t able to live up to the consumers’ expectations, they file chargebacks.
Prevent Affiliate Fraud and Chargebacks
If your merchant account, and ultimately the longevity of your business is at stake, preventing affiliate fraud takes on a new sense of urgency.
1. Review your chargeback reason codes; they will help you understand what type of fraud is being perpetrated.
2. Use filters that will label potentially fraudulent transactions “high risk.” Don’t process anything that raises suspicions.
3. Validate your transactions. Call the cardholder. Check IP addresses. Look for active social media accounts.
4. Invest in a system that allows you to quickly identify affiliates who may be masked under a network, with higher than average chargebacks.
5. Monitor the incentives your affiliate network and affiliates are using. Are they making promises you can’t keep?
6. Choose affiliate networks carefully. Check online forums. What do other businesses have to say about that particular network?
We learned from our mistakes and you can, too. Don’t wait until it’s too late before you get help.
Monica Eaton-Cardone cofounded Chargebacks911, eConsumerServices and Global Risk Technologies—fulfilling executive management roles in each.
This article appeared in issue 30 of FeedFront Magazine, which was published in April 2015.http://issuu.com/affiliatesummit/docs/feedfront-30