Fraud has been an issue since online performance marketing’s inception. When I first started in the industry in 1997, it wasn’t always called fraud, rather “innovative business practices.” From banner farms to click fraud, the industry has been rife with serious issues of fraud. The performance marketing and affiliate industry has always stood up during these instances, saying: “That’s why you must do a pay-per-performance model.” However, in the last few years, as the performance marketing industry has grown by leaps and bounds, our industry has become the target of sophisticated fraudsters.

Brian McLevis, CEO of ScrubKit, one of the main fraud protection systems used by affiliate networks, says fraud comes in all forms and from all factions within the industry. “There are dozens of different fraudulent tactics currently running rampant within the industry and fraudsters continue to try and push the envelope by innovating new ways to defraud companies,” he says. “There are actually many different types of fraudsters, from the flying-under-the-radar-guy that defrauds by trickling in a couple fraudulent conversions per day, to sophisticated fraud rings that utilize constantly evolving techniques ranging from stolen credit card or identity information acquired from hacked servers.”

Businesses that do not invest in a fraud protection system for use in conjunction with their online performance marketing efforts are easy targets, McLevis says. It is a requirement for almost all marketing companies to have a cutting-edge, legitimate system in place, whether in-house or third-party, that partners can rely upon. “Companies are no longer looking at a fraud management system as an additional monthly cost,” he explains, “but instead as something that will ultimately save them countless amounts of time and money while ensuring strong, long-term relationships with their business partners.”

Companies that don’t engage in fraud protection are now seen as rogues in the industry and often destroy relationships. They change their names frequently and are seen as confederates of the fraudsters. While they are not always actively engaged in the fraud themselves, their unwillingness to prevent fraud is seen as a huge detriment to advertisers and the industry in general.

Richard B. Newman, a well-known New York Internet marketing law attorney agrees, and says that “the consequences are many, both as it pertains to disputes amongst advertisers and publishers, to consumer-based fraud. With regard to the former, failing to deal with professional colleagues in an equitable fashion, despite shared business interests, undermines long-term viability and growth.”

The impact to the industry is clearly far reaching. “Consumer-based fraud devastates the industry due to increased regulatory scrutiny that ultimately chases off big advertising dollars,” says Newman, who represents numerous interactive advertising companies. “A proactive, self-regulatory culture that implements best practices and aggressive fraud prevention solutions, while dealing with associates at arm’s-length, is essential for the long-term survival of the industry.”

It’s obvious that companies like ScrubKit and CPADetective, another fraud protection company, are going to be gaining more and more clients as time goes by. However, for whatever reasons, there are companies in the industry that still feel that they can “get by” by not making an investment in fraud protection. Those companies that continue to operate in his manner are going to find they are being perceived as pariahs due to their lack of proactive attention and aggressive fraud prevention.

Written by Pace Lattin

Pace Lattin is one of the top experts in interactive advertising, affiliate marketing. Pace Lattin is known for his dedication to ethics in marketing, and focus on compliance and fraud in the industry, and has written numerous articles for publications from MediaPost, ClickZ, ADOTAS and his own blogs.

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