Are you a merchant looking to open up additional revenue streams to grow your business and make more money? There’s no need to start another business. Instead, you could try affiliate marketing. 

Utilizing affiliate marketing could be highly profitable for your business as categories such as Nutra, CBD, and skincare are popular with affiliates. However, there are risks associated with affiliate marketing — and this article will explain what this means for high-risk merchants. 

If you’re unsure if you’re classified as high risk or what being labeled a high-risk merchant entails, learn more here.  

In this article, we’ll review:

• What’s affiliate marketing?
• How does affiliate marketing impact a merchant’s risk?
• What’s affiliate fraud?
• Best practices for monitoring affiliate fraud

Without further ado, let’s dive right in!

What’s affiliate marketing?

Affiliate marketing is when an affiliate partner — essentially part of an online sales force — earns a commission through a promotion for a product or service when a lead takes a specific action. The action includes click-throughs, sales, and subscriptions. 

For example, a business may reward a percentage of sales for a product or service promoted through an affiliate link that a lead purchases.

Once someone signs up as an affiliate, they can start marking commissions. Best practices dictate that all affiliates must register with the applicable merchant to sell their product.

The benefit of affiliate marketing is that you can have affiliates for your business at minimal risk, financially speaking (we’ll explore other risks shortly). In other words, if you offer your affiliates commission through a sale, you only payout if the sale is successful.

Affiliate marketing can happen in many places online, including videos or video descriptions, blog posts, websites, social media platforms, and pretty much anywhere else online. 

How does affiliate marketing impact a merchant’s risk?

There are a few components to how affiliate marketing impacts a merchant’s risk. One of the reasons is affiliate fraud, which we’ll touch on shortly.

Trust is essential in affiliate marketing. Therefore, merchants must establish clear and concise rules for their affiliate marketers and implement internal checks and balances for reviewing sale transactions referred by their affiliates. One such example is that affiliate marketers must clarify that they are an affiliate wherever they advertise. Another is disallowing certain traffic types or promotional methods such as keyword bidding or email marketing.

We’ll get into specifics regarding checks and balances you can implement shortly.  

As we touched on before, affiliate marketing is an excellent method of increasing sales and significant return on investment. However, there are risks, so merchants must maintain best practices and a watchful eye to ensure this activity does not cause any compliance issues. 

Even if your business operates with little risk, a foray into affiliate marketing may increase your chargeback and fraud incidents if you’re not careful. 

What’s Affiliate Fraud?

In short, affiliate fraud occurs when an affiliate illegally tries to profit from affiliate marketing. Affiliate fraud can be difficult to detect but presents a serious cost to eCommerce businesses — it’s as big as friendly fraud and identity theft.

Unfortunately for merchants, affiliate fraud can lead to chargebacks, which can be especially dangerous to high-risk businesses already considered high-risk. Chargebacks can quickly undercut the money you would otherwise make from affiliate marketing and cause you to lose your payment processing abilities. 

The most at-risk for affiliate fraud are those that engage with the following affiliates:

• Pay per sale. The merchant pays a flat dollar amount per se to the affiliate, the most common structure. 
• Cost per acquisition. This is when an affiliate causes a specific action, including click-throughs, anything from watching a video, subscribing to a mailing list, or completing a form. 
• Pay per lead affiliates. This is when a commission is paid out each time your business receives a lead by the affiliate.

Know that rev share affiliate programs usually have a lower risk of affiliate fraud. Revshare is when a percentage of the sales generated from purchasing a product is shared with the affiliate marketer. 

Best practices for monitoring affiliate fraud

Affiliate fraud is the dark side of affiliate marketing, and fraud can detrimentally affect your business should you fail to spot it. Affiliate marketing fraud is huge, according to Chargebacks911. It rivals friendly fraud and identity theft when considering the potential financial impact. 

Affiliate fraud can cost merchants money in chargebacks, lost income, and wasted marketing efforts. It can affect your reputation with banks as chargebacks are red-flagged by them, and over time, they could even terminate their relationship with you. We always recommend employing the latest chargeback reduction models and even then, operating a backup merchant account.

There are numerous best practices for monitoring affiliate fraud. Doing so will decrease your risk of chargebacks and ensure your business stays running smoothly.

If you suspect an affiliate of engaging in fraudulent activities, it may be time to warn them or cancel their affiliate membership. Make sure you document and keep evidence against the affiliate as you will need this to prove fraud. 

One thing you can do is daily, weekly, and monthly transaction reviews. Here are some other tips:

• Monitor and (if needed) update your affiliate terms and conditions
• Be clear about your terms and conditions, and be sure to enact them when needed
• Keep data and learn to spot inconsistencies in transactions 
• Look through affiliate reports weekly, and flag anything that seems amiss
• If you notice anything suspicious, take action straight away

The longer you wait to punish fraud, the worse it can be for your business. Issue your affiliate a warning if you suspect something may have been done in good faith but in error, but seriously consider cutting ties if they deceive you. 

Conclusion

So there you have it! You should now understand what affiliate marketing is, how it impacts your risk as a merchant, what affiliate fraud is, and how you can best mitigate it.

Affiliate marketing is a great way to increase sales. However, you must have the correct payment processors in place because otherwise, you won’t get very far. 

But fear not! L3 payments are experts in this field, and we are open to all affiliate marketing merchants.

If you want to know more or have any questions, feel free to reach out to one of our payments experts, who’ll be more than happy to help you.