72% of Marketers Are Victims of Fraud

There’s no other way to say it: much of the internet marketing industry is fraudulent. If there are not shady folks pushing scams, then there are always networks and “agencies” with little or no ethics.

I was curious how prevalent marketing fraud is, so I did a survey of the 60,000 readers of my publication, PACEDm.com. The results surprised even me. Marketing Fraud is a lot more rampant than anyone thought.

In the last decade, there have been discussions at conferences, meetings at industry organizations, and general statements about fixing fraud. However, these attempts have failed to improve the situation.

Everyone admits that fraud is one of the most destructive forces in the marketing business. It has the ability to ruin any company caught in complex schemes.

Yet despite all advancements, the online marketing industry, especially performance marketing, is facing a crisis. There are not just more fraudsters, but better fraudsters.

Fraud is still here and it’s only getting worse. There is more and more money flowing into the performance marketing industry. There are more and more people launching networks and companies. And these people have little experience, limited ethics, and not a whole lot of trustworthiness.

The Stats on Marketing Fraud

This is what we found and have provided a nifty infographic.

• 82% of marketers say fraud is a serious problem in performance marketing
• 72% of advertisers say they have been a victim of fraud
• 10% of publishers say a CPA network has asked them commit fraud
• 11% of networks admit they have asked a publishers/affiliate to commit fraud
• 52% of publishers do not trust CPA affiliate networks
• 66% of advertisers do not trust CPA affiliate networks
• 84% of networks use some sort of fraud detection program
• 49% of advertisers believe it doesn’t work

We Talked to Some Experts on Marketing Fraud

What do these statistics all mean? In order to sort through this information, we asked some experts their advice. We wanted them to look into the numbers to find out what they mean and what can be done.

Strangely, despite the overwhelming issues, very few CPA networks wanted to speak to us about the fraud issue. The few that spoke to us off the record said they were worried about retaliation within the industry from talking about fraud too much.

However, Tim Burd, CEO of Digitize IQ and a columnist for Entrepreneur, revealed a little insight into why some CPA networks commit fraud. Byrd is the former owner of an affiliate network. He dealt with a lot of fraud from affiliates using complex schemes and scripts to trick the CPA networks.

He pointed out the problem with CPA networks not being trusted: ”Advertisers do not trust networks in many cases because many networks are incentivized to push through ‘iffy’ traffic. They mix sub id’s to blend the traffic.”

Phil Caramanica of CPAWAY, a relatively prominent CPA network, agrees with the issues. He told us, “Some networks blend traffic by taking different types of methods of promotion that are often not allowed and combine them with legitimate sources hoping the advertiser won’t notice the fraud.

Many networks we have found doing this as a way to increase the affiliate’s payout to be more competitive  while paying less the non-complaint traffic. This hurts the guys, trying to play by the rules.”

“It is mind boggling to me the number of affiliate networks that will clearly allow fraud, thanks to lax policies on fraud and also aggressive quotas imposed on affiliate managers,” Ricky Ahuja of RickyAhuja.com told PMI.

“This has obviously, and rightfully so might I add, made the advertisers weary working with affiliate networks. My stance for the last 12+ years has been one of complete transparency with the affiliate/network/advertisers, and I think working openly rather than trying to hide behind their legal department and fraud detection software would go a long way to help the industry progress.”

David Sendroff, CEO of Forensiq, a fraud detection tool used by many advertisers and networks, says that all advertisers and networks must have some sort of fraud detection tool in place. According to him:

Depending on where you sit in the ecosystem, there are a number of risks you take by working with affiliates.

Advertisers risk affiliate payouts and fulfilment costs associated with fraudulent transactions, while networks and aggregators risk advanced payouts, end of month chargebacks and the loss of their advertising clients.

Fraud detection creates a level of transparency so that both advertisers and networks have at least a real-time awareness of the intent and integrity behind each conversion. A more advanced integration also creates an ability to proactively block high-risk conversions, which is necessary to eliminate these risks.”

Burd does point out that CPA networks that blatantly are not committing fraud are still not really helping fix the problem. He says they “don’t vet the affiliates properly. It’s a shit show. Now obviously some networks are better than others at all of this.”

Yes, obviously not all CPA Networks are committing fraud. We are not suggesting that they are. Even by our own numbers, 10% of publishers report that they have been asked to commit fraud, and 11% of CPA Networks owners admit to committing fraud.

So approximately 90% of the networks are trying to follow the rules. But the other 10% of companies seem to be ruining the experience for the rest. Ricky Abuja agrees: “There are a lot of quality networks out there. Let’s not mess it up for everyone on account of a crappy few.”

So for most CPA networks, affiliates and advertisers, the issue isn’t that they are committing fraud. The issue is they are having a bad time preventing fraud from creeping in.

According to the survey, 84% of all networks use fraud detection programs that are supposed to catch swindlers in the act of trying to rip off the industry. Yet despite these steps almost half (49%) of all advertisers say these systems don’t actually work.

Brian McLevis has seen a lot of fraud as the CEO of Scrubkit, a CPA affiliate fraud detection tool. He doesn’t buy that the systems don’t work, telling us that “I am not sure who is saying ‘they don’t work’ because ScrubKit has yet once to steer us in the wrong direction.

Maybe the people saying this are uneducated in the fraud software space and/or basing their opinions on information that isn’t factual or firsthand experience.”

Attribution Fraud

Sendroff of Forensiq seems to agree and told us that the “the increased sophistication of fraudsters, faulty attribution and a lack of granularity in reporting are a few reasons that advertisers may question fraud detection.

Attribution fraud happens to be very confusing for advertisers because they are seeing true revenue associated to a set of conversions. For instance, cookie stuffing and mobile device stuffing allow affiliates to steal the credit for real conversions or installs based on traffic they haven’t actually driven.

In lead generation, fraudsters will also capture leads through non-approved channels and then recycle them to a number of similar campaigns.

Bad actors tend to blend their traffic with legitimate sources, which can also throw off KPI’s. Therefore, it’s important to use a fraud detection solution that evaluates the integrity of each and every conversion rather than looking at the overall success on an aggregate level.”

What are your thoughts about these results? Do the systems work? How do we prevent fraud, and is it really this bad? What do you think can be done to fix this problem?

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Pace Lattin

Pace Lattin has been in online marketing for over 20 years, having been a co-founder of the first online advertising sales rep company in 1997. He currently works with brand clients to fix their online marketing and PR mistakes.  He publishes PACEDm.com since 2010.

Latest posts by Pace Lattin (see all)

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