Marketers are expected to lose $1.4 billion this year due to affiliate fraud, according to a new global economic study by CHEQ.

The cybersecurity company has undertaken a report detailing the full scale of affiliate fraud, with economist Roberto Cavazos, a professor of economics at the University of Baltimore, using the latest economic analysis, proprietary CHEQ data, and expert interviews. 

According to the report, affiliate marketing stands at $15 billion in 2020, however, at least 9% of all transactions are affected by fraud — with bad actors exploiting shortcomings in tracking and attribution to claim commissions unfairly. In return, this is damaging the bottom line of companies in online sectors including travel, retail, and finance. 

Global economic costs

The report also recorded that the direct global economic costs of affiliate fraud are conservatively placed at $1.4 billion. However, it adds that affiliate fraud is likely to continue as fraudsters attack the budgets of affiliate programs during the economic downturn. 

The attractiveness of affiliate marketing continues to rise as brands perceive it as “lower risk” during a recession because advertisers only pay when they see success.

At the same time, publishers are turning to affiliate marketing as they counter losses in traditional advertising revenue, while consumers are drawn to promised rewards offered.

However, the report added that despite the rise of affiliate marketing, there is a combined lack of transparency – a necessary requirement for fraud — as brands manage relationships with thousands of affiliates they have never met.

This has created a growing incentive for fraudsters to hijack rising online affiliate marketing budgets globally, through methods including cookie stuffing, malware, app attribution fraud, and typosquatting. 

“Though affiliates are the life blood of many digital marketers, providing a powerful source of referral sales, there is undoubtedly a dark side.  There have been major cases of affiliate fraud in all industries creating an ongoing effect on the bottom line of many businesses. We are seeing digital ad fraud techniques continuously growing in both sophistication and volume as unscrupulous affiliates seek to take credit for purchases they had nothing to do with, at the same time undermining the trust required for genuine affiliate marketing to succeed,” said CHEQ founder and CEO Guy Tytunovich.

“Affiliate marketing promised to remove many of the risks associated with traditional digital marketing channels, with a clear pay-per-sale model. However, the reality has not been so straightforward. It will require honest and robust methods to confront the realities and tackle this challenge,” added Roberto Cavazos, executive in residence at the University of Baltimore’s Merrick School of Business.