Client Services Director
Affiliate marketing can be a very powerful channel for driving revenue, but it also comes with certain risks. Arguably the most dangerous risk is affiliate fraud, where unscrupulous affiliates engage in false, illegal or unethical activities to generate unearned commissions.
This issue affects all industries engaged in affiliate marketing, and financial services organizations are relatively more susceptible. According to Forter’s 2019 Fraud Attack Index, the digital nature of financial services makes the sector an attractive target for fraudsters. Consequently, financial affiliate fraud has been growing rapidly, with a 48% increase from Q2 2018 to Q2 2019 alone.
Fortunately, the affiliate marketing industry has developed proven best practices for minimizing the risk of fraud. Financial marketers should strongly consider implementing these practices before scaling up their affiliate program.
Develop a Clear, Comprehensive TOS
Your terms of service (TOS) agreement is the first line of defense against undesirable affiliate behavior, including outright fraud.
The TOS should be both clear and comprehensive. While clarity can be subjective, the TOS should ideally be written in simple language, not legalese. It should be written at an 8th-grader level and explicitly define what affiliates are and are not allowed to do. The goal is to prevent ethical affiliates from unknowingly violating the rules, and unethical affiliates from claiming ignorance when they do.
Comprehensiveness can also vary by company, industry and program. But at minimum, your TOS should cover three main areas:
- Legal compliance
Financial services marketing is highly regulated, and your affiliates need to be informed of all the relevant laws in your specific industry and jurisdiction. Also consider the general legal requirements that apply to most affiliates, such as:
- Regulatory and consumer protection compliance for affiliates engaging in email marketing, including CAN-SPAM, CASL and GDPR
- Relationship disclosure for affiliates who are writing or publishing reviews of your products
- Limitations on provision of financial advice by unlicensed affiliates
One especially important issue to include is the use of incentive marketing programs, where affiliates provide various financial and non-financial rewards to customers who sign up for your products. In many consumer finance markets, such practices can lead to legal complications. Financial marketers should establish a clear policy on such programs and describe it in their TOS.
- Reputational safeguards
Most TOS agreements include a generic clause that allows merchants to stop any affiliate activity deemed harmful to their brand. This provides broad protection against unexpected forms of reputational risk, which is essential in the constantly evolving field of affiliate marketing.
Many companies also include prohibitions on specific types of affiliate content, such as hate speech and adult content.
- Branded keywords
Affiliates should be required to include your brand terms as negative keywords when bidding on PPC campaigns. This will prevent competition between your own internal marketing and that of your affiliates.
Additionally, affiliates should not be allowed to use your branded or trademarked terms in domains, subdomains, or user accounts. Not only is this misleading for customers, you may also risk forfeiting your exclusive rights to those names online.
Monitor Affiliate Activity
Onboarding your affiliates is the first essential step to success. Following up with ongoing performance monitoring is critical for your affiliates to continuously deliver legitimate results over the course of the partnership.
Detecting fraud is sometimes more art than science, but there are a few red flags to watch out for:
- Abnormally high conversions. If your average affiliate conversion rate is 3%, but one affiliate is regularly converting at 10%, that may be a sign of trademark bidding.
- Abnormally low conversions. This might indicate misleading advertising which results in low engagement. Or it could be that the affiliate is “cookie-stuffing”, where an affiliate generates a large volume of fake traffic to boost their site’s metrics.
- Rapid changes in performance. If an affiliate that has been delivering ten sales a month suddenly jumps to a hundred, it’s worth taking a closer look. Event-driven spikes are sometimes possible, but are considered a rarity that normally isn’t sustained.
In addition to these red flags, your performance marketing team should also possess expertise in the technical side of fraud detection. Regularly conducting IP checks and email root checks on your affiliate referrals is a great way to unearth fraudulent behavior. (Not sure of how to do this? Your performance marketing team should be able to.)
Work With A Reputable Affiliate Network
While these methods can go a long way in preventing affiliate fraud, doing it effectively and consistently takes time and resources. It may require hiring, training and managing a dedicated in-house fraud prevention team.
To offset the weight of these costs, an affiliate network can do the heavy lifting for you. When you work with a reputable affiliate network, your company is given:
- Protection of default TOS, customizable to your needs
- Access to a network of pre-vetted, qualified affiliates
- A dynamic dashboard of analytics and reporting to monitor affiliate activity eaily
- In-house expertise to combat the constantly evolving tactics of technical fraud
Get in Touch
As a full-service affiliate platform for financial services organizations, Fintel Connect provides all of the above and more. Contact us today to learn how we can help you prevent affiliate fraud in your business.