How affiliate marketing impacts the bottom line is determined by how well merchants prevent and respond to fraud.
Clean Fraud: A New Threat
Affiliate fraud is devastating enough, but a new genre of criminal activity makes mitigation efforts even more difficult. Clean fraud is perpetrated with stolen credit card information and is nearly impossible to detect.
Criminals acquire such an extensive amount of cardholder information that they can accurately impersonate a valid customer and process transactions without raising red flags. These individuals know how to circumvent detection because they have a thorough understanding of fraud prevention systems.
By early 2014, members of the Merchant Risk Council were already reporting clean fraud as their number one fraud threat. A 2016 CyberSource study shows clean fraud is also the number one threat for UK merchants.
Clean fraud mitigation yields four potential results. The advertiser may:
- Correctly assume the transaction is good.
- Correctly assume the transaction is fraudulent.
- Incorrectly assume the transaction is good, resulting in a chargeback.
- Incorrectly assume the transaction is fraudulent, turning away a loyal customer.
Unfortunately, if merchants remain incapable of distinguishing fraudsters from customers, they’ll remain at either end of the spectrum—alienating good customers or sustaining significant losses.
Recognizing the Importance of KPIs
Affiliate marketing demands the analysis of at least some KPIs (key performance indicators) since payment is determined by sale activity.
However, beyond the minimum, most advertisers don’t track data or optimize outcomes. An Econsultancy report found 75% of merchants don’t translate marketing data into actionable insights.
An unwillingness to monitor campaign profitability means advertisers limit their earning potential while allowing fraud to continue unchecked.
To effectively mitigate affiliate fraud, merchants need advanced KPI tracking. This means implementing both short and long-term evaluations, establishing baseline controls, detecting patterns, conducting multi-layer analysis, and customizing measurements.
- Affiliate performance: How active is each affiliate? How much revenue is attributed to each affiliate? What percentage of overall commissions goes to each affiliate compared to revenue generated?
- Lifetime customer value: Combine post-sale involvement with affiliate data to determine the lifetime value of a customer.
- Online traffic: An increase in traffic that exceeds 8% (for non-coupon sites) should be considered suspicious.
- Customer feedback: Direct communication with cardholders is an underutilized data source. Cardholders can help discern between merchant error or lack of follow-through and illegitimate incentive fraud.
- Geolocation and device intelligence: Track consumers to the geographic location or device associated with their account. Monitor IP addresses and other identifying characteristics.
- Chargebacks: Which genre of fraud is to blame? Which affiliate generates the most fraud (as evidenced by chargeback issuances)? Which campaign generates the most fraud? What is the correlation between commission payments and chargeback issuances?
KPIs aren’t just an effective way to determine profitability. They are an essential fraud mitigation tool, because if left unchecked, affiliate fraud will continue to rob profits and spike processing risk.
Monica Eaton-Cardone, COO of Chargebacks911, helps merchants identify risks, prevent fraud, and optimize profitability.
This article appeared in issue 35 of FeedFront Magazine, which was published in July 2016. https://issuu.com/affiliatesummit/docs/feedfront-35