ReferralHero is the ultimate training ground for marketing athletes. With a playbook full of referral strategies, we’ll have you sprinting past your competitors and scoring big with customers.
A referral program is one of the easiest and most effective ways to bring new customers to your brand. However, as with any initiative, it’s always possible for bad actors to find loopholes and exploit the system.
One in five companies have reported referral fraud, and that was only the fraudsters who were discovered. Fake accounts, automated bots, and malicious parties can cause long-term damage to your company’s reputation and bottom line.
If you want to reap the rewards of a successful referral campaign, you need to be aware of and prepared for referral fraud. Let’s take a look at some of the most common techniques that fraudsters use, and how you can take them down before they tank your campaign’s success.
The Ins and Outs of Referral Fraud
Referral programs are a great way to reward your customers for sharing your company. However, they can open the door to referral fraud. This kind of fraud involves individuals falsely referring customers to cash in on the rewards and incentives you’ve set up.
Any amount of referral fraud can lead to serious repercussions for your business, including
- Financial Loss - As you pay out rewards and commissions for fake referrals, your company ends up losing quite a bit of money over time, potentially cancelling out the legitimate ones
- Wasted Resources - Following up on fake leads takes time and energy away from real conversions
- Sullied Data - False referrals can interfere with proper reporting, and KPIs, and lead you astray when using data-driven decision-making
- Potential Fines - If enough fake information enters your system, you could face KYC compliance issues
- Damaged Reputation - Some types of referral fraud can lead to your company being associated with spam mail or false advertising
Wherever there is a good system, there will be criminals who want to exploit it. Your team must be prepared to identify and deal with referral fraudsters at every level of your campaign.
Types of Referral Fraud
As with any kind of fraud or con, there are several varieties of referral fraud that you should be aware of. Some will only work for specific types of referral programs, while some are universal and widespread.
Affiliate Bots
Some fraudsters will deploy an army of automated bots to generate fake leads. These robotic minions can click referral links, fill out fake accounts, and may go so far as to use stolen credit card information to make purchases.
All this activity leads to massive payouts, especially if you reward affiliates per click. However, even if these fake leads make a purchase, you’re likely to rack up chargebacks and fees.
Fake Accounts
A very common form of referral fraud involves people making multiple accounts and “referring” themselves. This can be difficult to detect, and the accounts often appear legitimate on their own. However, you end up paying out rewards for a lead you already had.
Forced Link Follows
If you’re rewarding people for every new user they send to your site it opens the door to fake links, malware, and popups forcibly directing people there. For example, a fraudulent affiliate might create a predatory email campaign with an embedded link to your page.
This kind of fraud doesn’t only lead to a wave of uninterested leads. If enough people are misdirected to your site, your company could be associated with spam and shady practices.
Fake Influencers
Influencers can make excellent brand ambassadors, but you need to know you can trust them. It’s easier than ever for folks to purchase followers and pad their numbers with bots and fake accounts. Crafty online personalities may use this to upsell you on influencer contracts.
If you do make a deal with one of these inflated pages, you’ll be left with content and partnerships only seen by fake followers.
Code Sharing
While it may not be as egregious as other forms of referral fraud, posting a referral code or discount code on a site specifically made to disperse coupons is common.
It might seem harmless at first glance, but the people seeking out these codes were already aware of your business, and likely searching right before making a purchase. This means you’re dishing out rewards and discounts without any fresh leads, or loyal customers, making their way to your site.
Designing an Anti-Fraud Referral Program
Before bad actors even have a chance to defraud your campaign, you can create built-in deterrents. By being aware of how fraudsters think and approach referral programs, you can design your strategy in a way that chases them off.
Tip One: Use Creative Rewards
The majority of fraudulent referrals are after cash rewards. Offering commissions or a set dollar amount per referral will attract bad actors to your company.
There are several incentives you can use that will only be interesting to real, loyal customers, including
- Exclusive discounts or free products/services
- VIP status or access to special events
- Donations to a charity in their name
- Branded merchandise or gifts
These rewards appeal to genuine customers who are already invested in your brand but are not enticing enough for fraudsters to bother with. They also cost your company less in the long run and show that you’re invested in the things your customers care about.
Tip Two: Reward Complex Actions
It’s simple to program bots to click a link or visit a website. Beyond the threat of fraud, rewarding referrers for simple invites or link clicks often means paying for cheap leads that are difficult to convert.
Designing your referral program to require making a purchase, filling out a contact form, or meaningfully engaging with your brand makes it difficult for fraudsters to attack, and ensures quality leads.
Tip Three: Include Limits
While it may seem counter-intuitive, limiting the amount of referrals a person can bring in during a period of time can actually boost the effectiveness of your campaign. If a fraudster sees that they can only bring in five or ten referrals a year, they won’t take the time to set up a complex fraud.
What’s more, by capping the number of referrals, you’ll encourage your legitimate customers to share their links with leads that will actually pan out.
Tip Four: Use Quality Referral Software
Keeping track of leads coming in is difficult on its own. It’s even more challenging when you’re keeping an eye out for cheaters. Partnering with quality referral software will give you a huge leg up.
Look for a platform that has fraud detection capabilities and analytics tracking. This will make it easier to spot and block any suspicious activity before it impacts your campaign. Additionally, it should allow you to customize your program and implement the tips mentioned above, making it easier for you to design an anti-fraud referral program.
How ReferralHero Prevents Fraud
ReferralHero is trusted by some of the biggest brands in the world for good reason. We take the integrity of your referral program as seriously as you do.
Our number one line of defence against people looking to cheat the system is our anti-fraud algorithm. It continually scans each of your leads for hints of fraudulent activity, and flags them for you.
This algorithm has five layers:
- Email Alias Check - Aliases allow you to have several email addresses connected to one account. By ensuring emails sent in through your referral program are not aliases, we can limit the number of people referring themselves
- MX Record Check - Fake email addresses will often use domain names that don’t exist. We will check leads against a record of existing domains, and flag any that are fake or are associated with malicious activities
- Disposable Domain Check - Some email addresses are designed to disappear, essentially acting as a ticking time bomb. By identifying these emails as they come in, we can prevent your communications from bouncing
- IP Address Analysis - We will flag any subscribers who come in with the same IP address or device. These are not always fraudsters, as many offices will operate under a single IP address, but it can be a red flag
- Behavioural Analysis - Any leads that are highlighted as potentially fraudulent will be examined closely. There are several hints that can point to cheating, such as referrals that come in too quickly, or multiple similar email addresses
The ball is still in your court when it comes to suspicious referrals. You can see a list of flagged emails at any time and decide if you want to keep them in the system or delete them entirely.
We recommend checking to see if they are coming from the same referrer, and preceding from there. Ultimately, you can make the call on how strict you want to be about potential fraud.
The Bottom Line
Referral fraud is a real threat to any referral program, so it’s crucial to be on the lookout for any signs of suspicious activity. By implementing proper security measures and keeping a close eye on referrals, you can prevent fraudsters from exploiting your program and damaging your brand’s reputation.
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