Prof. Cavazos's Latest Report: Digital Ad Fraud Costs Will Rise to $35B Globally This Year
October 28, 2020
Contact: Office of Government and Public Affairs
In his latest report with the cybersecurity company CHEQ, Roberto Cavazos, Executive in Residence in the University of Baltimore's Merrick School of Business and a veteran economic analyst with extensive experience in financial, data and health care fraud, says that marketing losses due to ad fraud will rise to $35 billion this year, and may end up closer to $40 billion. Advertising fraud is now larger than fraud from credit cards, the report says.
The cybersecurity company's report with the UB economist details the full scale of ad fraud, using the latest economic analysis, proprietary CHEQ data, and industry interviews. It finds that while direct global economic costs of ad fraud are pegged at $35 billion in 2020, indirect economic and social costs push that total closer to $40 billion.
The report finds that losses from digital-advertising fraud ($35 billion) has overtaken global annual credit card fraud ($27 billion). This, despite the fact that only $333 billion will be spent on digital advertising in 2020, compared to $3.32 trillion in the credit card sector. Rates of fraud in digital advertising spend are now more than six times higher than the insurance sector, 1.8 times higher than health care and 13 times higher than the credit card sector.
The report finds that the rise in fraud follows the onset of COVID-19, with advertisers facing increases in malvertising attacks, click fraud on paid search and paid social campaigns, and resurgences in affiliate marketing fraud and OTT programmatic ad fraud. In addition, the report finds that between 10 and 30 percent of $1.3 billion digital political spend in the upcoming U.S. presidential election is set to be lost to ad fraud, given the requirement for full spending of campaign money by Nov. 3, with little accountability.
Finally, the sophistication of ad fraud attacks has vastly increased among bad actors, reducing the chances that frauds are discovered. The study finds that with marketers pouring billions into digital ads, up to 30 percent of ads—21 trillion online ads—are affected by fraud each year. However, the study argues that not all instances cost the same, and in many cases, fraud disproportionately affects low-level campaigns with a cheaper cost per thousand. The study argues that a 10.5 percent composite rate of total ad spend lost to ad fraud reflects a mix of both lower-end and higher-end ad campaigns, totaling losses of $35 billion in 2020. Left unchecked, the direct level of fraud is expected to reach $41 billion in 2021 and $46 billion by 2022.
"Fraud is inevitable in any sector, however, the level of ad fraud is now staggering," Prof. Cavazos said. "The digital advertising sector has the unwelcome distinction of having higher fraud rates than multi trillion-dollar sectors including healthcare, credit, and insurance. Though there has been much industry progress to stamp out fraud in digital advertising, the systemic complexity, competing interests, and sophistication of attacks, particularly during a recession, have made the ecosystem a breeding ground for bad actors."
CHEQ founder and CEO Guy Tytunovich added, "Despite a tumultuous year for marketers, digital advertising now represents the main destination for ad dollars. In this situation, we see that fraudsters have ready access to the most advanced tools ever available to commit fraud at scale. In addition, incentives to commit ad fraud have only grown due to the economic downturn, creating a perfect storm for digital ad fraud."
View the full report.
Read more about Roberto Cavazos's work in The Independent.
Learn more about CHEQ.