PayPal Honey lawsuit highlights growing issue of adtech fraud

Adtech expert Mathew Ratty explains common forms of advertising fraud and how to tackle them.

Advertising fraud is becoming increasingly sophisticated, and it is time for brands to recognise the challenge being presented to them.

The current PayPal Honey situation is only the tip of the iceberg.

Affiliate marketing isn’t going anywhere, opening up unprepared advertisers to bad actors. As fraud evolves it will only become more harmful and difficult to detect. Brands must adapt to secure their budgets and protect their marketing campaigns.

Fraudsters rely on operating undetected, meaning a proactive stance is crucial to identify fraud before it can take place. Actively monitoring your analytics will ensure that affiliate partners aren’t getting away with ad fraud, safeguarding budgets and future campaigns from harm.

Capturing the last click

Affiliate marketing has continued to evolve and thrive in recent years. The low start-up and ongoing costs make it an attractive venture for businesses looking to drive engagement. Influencers and content creators have found major success with affiliate marketing, with brands frequently turning to them to reach a wider audience.

PayPal-owned browser extension Honey is no different, leveraging influencers to promote its services. However, controversy arose in December as the brand was hit with a lawsuit alleging it had been stealing from content creators and misrepresenting itself to consumers. It was claimed that when consumers with the Honey extension installed clicked on a creator’s affiliate link, Honey would substitute its own link when a purchase was made.

Capturing the last click like this means that Honey would earn the commission that should be rightfully attributed to the creator. Not only does this harm creators financially, but consumers are also directly affected. This is due to the firm reportedly offering consumers inferior voucher codes that favour retailers instead while claiming it’s the best deal on offer.

Advertising fraud like this is becoming increasingly sophisticated. Companies are unaware that losses from fraud are adding up quickly. But it doesn’t stop there.

Data analysis reveals how fraudulent practices such as cookie stuffing and misattribution are draining advertising budgets, with the Honey case being one of many potential examples.

These cases represent a broader issue plaguing affiliate marketing, where malicious tactics quietly siphon budgets and undermine trust. If companies remain in the dark about ad fraud, the damage to budgets will only continue to grow.

Ad fraud at work

Affiliate marketing fraud is an insidious issue customers encounter frequently.

Fraudsters exploit the inherent vulnerabilities in attribution models, particularly the ‘first click’ and ‘last click’ crediting systems. By manipulating these systems, they can claim commissions that should rightfully go to genuine partners.

One common method, cookie stuffing, involves attaching irrelevant third-party cookies to users after they visit a legitimate affiliate’s website or click their link. If the user later converts on the target site, the fraudster is credited, not the genuine traffic driver.

According to PerformanceIN, cookie stuffing schemes impact 5-10pc of affiliate marketing transactions, significantly distorting attribution.

In Honey’s case, the brand allegedly triggers ‘behind-the-scenes’ referral clicks to place a cookie and claim attribution. This is carried out using two methods.

Method one involves inviting the user to click a discount code to copy it to memory. In this scenario, Honey allegedly generates an additional, hidden referral click the user is unaware of to claim attribution.

Method two involves inviting the user to apply a promo code. In this scenario, Honey allegedly opens a new window in the background, triggering a discreet referral click before proceeding to close the window. This happens without user involvement.

The Honey case is far from unique. Capital One, through its browser shopping extension, faces similar allegations of affiliate fraud. The extension works by automatically searching for and applying discount codes at checkout or finding better prices as users shop across sites such as Amazon, Target, Nike and many more.

However, behind the scenes, Capital One Shopping allegedly generates referral clicks just seconds before a purchase is completed. For example, users referred to Disney’s website via JustWatch reportedly completed the entire sign-up journey, only for Capital One Shopping to inject a last-second click. This tactic secured attribution for the purchase, despite the real referrer being JustWatch.

By appearing to ‘assist’ with savings or price comparisons, extensions such as Capital One Shopping can potentially mislead both consumers and businesses, exploiting attribution systems to redirect affiliate commissions. This practice exemplifies the systemic risks in affiliate marketing, highlighting the need for vigilance and robust fraud prevention measures.

Fraudsters follow the money, and the popularity of affiliate campaigns has given them plenty of targets. Ad fraud has a considerable negative impact on a business, as while fraudulent affiliates take money, the deceived website is paying up for a service it has not received, wasting budget.

Misattribution from fraudsters happens without advertisers ever being the wiser, leaving companies paying out for redundant traffic. The problems don’t stop there however, as companies begin to optimise towards the fraudulent source falsely believing it is driving growth. This means genuine partners are ignored in favour of fraudulent ones. Future campaigns are then affected, resulting in long-term losses and wasted optimisation efforts.

Combatting fraud with transparency

To protect their campaigns from rapid hits to budgets, advertisers need to be prepared.

One of ad fraud’s biggest strengths is its ability to go undetected, but this can be circumvented with active monitoring. Regularly monitoring your metrics and traffic can help identify fraud before it has a chance to damage budgets.

Despite the increased sophistication of ad fraud, it does leave behind tell-tale signs for businesses to pick up on.

For example, a sudden surge in conversions without a corresponding increase in organic traffic or engagement could be a sign that cookie stuffing is taking place.

Traffic originating from questionable websites or sources are another potential sign that fraudsters are trying to interfere with a campaign.

If you notice certain affiliates being paid for excessively high commissions without substantial evidence of their contribution, they could be cookie stuffing. Advertisers should be screening new partners, reviewing their platforms and weeding out unethical affiliates. This way, they can protect their budgets, as well as rewarding the right partners.

Safeguarding future campaigns

Affiliate marketing has given brands the means to effectively market a new product or service with a low budget. However, advertising fraud is continually evolving, and the success of affiliate marketing makes it a prime target.

Brands need to constantly adapt to keep ahead of advertising fraud. Fraudsters may be able to manipulate affiliate links, but if brands know the warning signs, they can stop them at the source. This way, brands can secure their budgets and protect the integrity of campaigns going forward.

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Read the full article at Silicon Republic.

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