Affiliate Fraud

Affiliate fraud can determine the success or failure of an entire affiliate campaign. Affiliate traffic has enormous potential. But it has many disadvantages- recruiting, training, managing and accounting for thousands of individual affiliates. Affiliate networks can take care of all of these headaches.
First, it is important to understand the dynamics between affiliate networks and advertisers. Most affiliate networks utilize utilize pixel tracking, conversion analysis and or affiliate performance metrics to identify and eliminate any fraud within their networks. If specific affiliate ID is responsible for excessive refunds or chargebacks, affiliate networks are not able to detect it. Which affiliates have the lowest rebill, retention or returned shipped packages cannot be tracked either. Affiliate networks can only see a piece of the entire order flow. Advertisers are the only ones who has access to everything post-transaction. Post-transaction data analysis, is therefore necessary to identify and eliminate affiliate fraud.
Make sure every transaction has an associated affiliate ID. Example: Transaction number 1844 was generated by affiliate ID PQR. This can be automated by passing the affiliate ID along with the consumer's billing information when processing any credit card transaction.
Monitor transactions that are approved, declined, refunded and charged back. Look for affiliate ID with
A)Lowest Approval Ratio(Initial transactions if there is a continuity model involved.)
B)Highest Decline Ratio (Including rebills.)
C)Highest Refund Ratio.
D)Highest Chargeback Ratio.

Approval Ratio
Affiliate traffic should be approving at least 80 percent and more. Each affiliate should be in the range of 80 approved transactions for every 100 generated. Now rank the affiliate IDs from highest to lowest. The bottom 10 percent are the worst performing affiliates and most likely driving fraud into your offers.
Decline Ratio
Decline ratio is critical to any online offer that involves continuity subscriptions.
An advertiser may be paying out $50 or higher CPA but it may take a couple of rebills to become profitable on each sale. A slight affiliate fraud could drop rebill ratios and resulting in negative ROI.
The decline ratio is each affiliate IDs number of declines divided by the total number of attempted transactions. If affiliate ID XYZ has 99 declines for every 100
rebill transactions, his decline ratio is 99 percent — grounds for immediate termination. Better performing campaigns have decline ratios of 30 percent or less. Just look at your affiliate ID’s decline ratios, identify the worst offenders
and get rid of them.
Refund Ratio
Depending on the type of offer the refund ratio should be in the range of 5-15 percent. Anything above 20 percent is too high. This is the number of declines requested divided by the total number of approved transactions generated. Eliminate affiliates that consistently produce highest refund ratios, as those are most likely caused by stolen credit cards.
Advertisers should calculate the first three ratios once a week before paying affiliate networks insertion orders. This allows you to monitor the performance of each affiliate and consistently weed out the worst offenders. Additionally, most reputable affiliate networks will credit back any obviously fraudulent transactions, which can help to lower overall advertising costs.
Chargeback Ratio
This ratio must be consistently performed in real time. Anytime a consumer disputes a credit card order or transaction, it is referred to as chargeback. Think of chargebacks as fire — when uncontrolled, it becomes a very dangerous situation. Think of each chargeback as a single match — a very small flame but with the potential to create serious damage if left to burn. Diligently monitor your chargebacks and the fires will never get out of control. It’s that simple.
There are two types of chargebacks. Operational chargebacks are caused by
mistakes made in operations. Failing to ship a product or issue a timely refund are two types of operational chargebacks. The other type of chargeback is specifically associated with stolen credit cards. “Customer Did Not Authorize” and “Card Stolen” are the most common chargeback descriptions.
For each affiliate ID, monitor the number of chargebacks against the total number
of approved transactions. So, if affiliate ID XYZ had 20 chargebacks on 100 approved
transactions, the affiliate has a 20 percent chargeback ratio. To put things in perspective, in the brick-and-mortar retail world, the average chargeback ratio is about 0.15 percent. For the online e-tail industry, the average is about 0.45 percent. If you have an affiliate ID(s) that’s consistently generating above a 5
percent chargeback ratio, get rid of them.
All of these ratios and numbers can be easily calculated using a basic spreadsheet if
your offer is generating less than 100 orders per day. For more sophisticated campaigns involving multiple products, offers and networks, you can custom build database systems to automatically track data or simply outsource to any number of reputable vendors that provide these services.