Online Marketing

Do Chargebacks Make Affiliate Marketing Too Risky?

affiliate_chargebacksMarketing is an essential component for any business. Stop marketing your products or services and you can expect sales to dry up.

However, not all marketing is the same. You can’t embark on just any online marketing campaign and expect instant success. In fact, if you aren’t careful, your marketing can actually do more harm than good.

Affiliate marketing is the perfect example. If done properly, affiliates can generate significant revenue. If managed incorrectly, affiliate marketing could actually destroy your business.

Why Everyone is Drawn to Affiliate Marketing

Some ecommerce merchants swear by affiliate marking, claiming it is the best online marketing strategy available. There are several benefits of affiliate marketing, so it’s easy to see why many people are a fan.

The pros of affiliate marketing include…

  • Instantaneous leads. Launching your affiliate marketing campaign is relatively painless. Sign up with an affiliate network or find publishers on your own. Either way, once your campaign is active, you can expect leads right away.
  • A simple form of marketing. A lot of other promotional strategies require extensive marketing knowledge in order to be successful. Affiliate marketing requires minimal knowledge and even less effort.
  • Access to your target market. Publishers grant you access to your target market. The leads an affiliate sends you are prequalified, already interested in what you have to offer. Plus, you have access to a whole bunch of people you wouldn’t normally be able to reach on your own.
  • Ensured ROI. Publishers only earn a commission on any sale they send you. Therefore, you only pay for leads that result in a purchase, ensuring you earn an ROI.

Unfortunately, many merchants don’t look beyond the pros of affiliate marketing. If they did, they’d realize affiliate fraud is a very real danger, one that leads to chargebacks and possibly the destruction of the business.

The Correlation between Affiliate Fraud and Chargebacks

There are various forms of affiliate fraud, but they all essentially result in the same outcome: publishers receive commissions they didn’t earn. While this fraud can cost merchants big bucks in undeserved commission payouts, it can also cause chargebacks—a much more dangerous cause of profit losses.

A chargeback is issued to a merchant when a consumer requests a refund from the bank. The bank will forcibly withdraw funds from the merchant’s bank account and provide a credit to the consumer.

It may seem insignificant to quibble about who provides the refund. Either way, the business has lost those profits. However, there is a big difference between a merchant-issued refund and a bank-issued refund.

  • Each chargeback is accompanied by an administrative fee. This fee can be as much as $100 per chargeback.
  • If a merchant receives too many chargebacks, the bank will close the merchant account. Without a merchant account, the business is unable to process credit card transactions. Without this ability, the business will likely close its doors.
  • Businesses that lose their merchant account are blacklisted, making them ineligible for a new merchant account for several years.

Most merchants are rightfully terrified of chargebacks, but will unknowingly put themselves in situations where chargebacks flourish—like affiliate marketing.

In a recent article, Chargebacks911 COO Monica Eaton-Cardone pointed out two situations where affiliate fraud could cause chargebacks:

  1. The affiliate himself makes several purchases with your business, but uses stolen credit card numbers for the transactions. When the real cardholders discover the fraud, they file chargebacks. Not only do you need to pay the chargeback fee, lose revenue, and forfeit future resale potential, you also pay a commission to the affiliate who stole from you!
  2. The affiliate makes outrageous promises on your behalf to lure the shopper (like “lose 20 pounds in 3 days!”). Once the consumers realize your product or service doesn’t live up to the hype, they’ll file a chargeback.

Reducing the Risk of Chargebacks

The article went on to provide several tips that help ensure a safer, less risky affiliate marketing experience. It’s suggested merchants do the following things to help reduce chargebacks:

  • Carefully review each chargeback that results from an affiliate purchase. Which chargeback reason codes are most commonly used? The reason codes will tell you which genre of fraud is being committed.
  • Be on the lookout for potentially fraudulent transactions. Know the red flags of fraud. Don’t process transactions that seem strange or unusual. Validate the order with the cardholder if you are in doubt.
  • Use technology to help you detect fraud. Alerts will label transactions that should be avoided as “high risk.” Other systems will help you unearth potentially fraudulent affiliates by the number of chargebacks their referrals instigate.
  • Check which offers your affiliates are making. Are they advertising your products or services in a way that is misleading?
  • Research your affiliates. Do forums or scam websites tell tales of deceit? Ask around the affiliate community. What do other businesses think of this network or that publisher?

The Feedfront author shared advice about affiliate fraud and chargebacks because her own business suffered from these issues. She was a victim of affiliate fraud to the extent it threatened the longevity of her business.

Before you jump blinding into the affiliate marketing scene, be on the lookout for affiliate fraud. If you’ve been a victim, let us know. We’d love to hear your story too!

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