Transcript Internet Fraud and its impact on ecommerce

E-commerce Fraud: The New Reality
Thomas Chim
Raj Nair
Chris Geegan
Mike Grimsley
E-commerce loses climb
– $700 million more in losses in e-commerce revenue this year
– Businesses will lose $2.6billion to online fraud in 2004 – 34%
increase over 2003 figures
– Small and midsize businesses (US$500,000 to US$5 million) will
be hardest hit. Will lose up to 2.5 percent of its online revenue to
fraud, compared to 1.9 percent last year.
– Companies with online revenue between US$5 million and
US$25 million will see a loss rate of 1.5 percent (same as last
year)
– Those with US$25 million-plus revenue anticipate losses of 1.1
percent (down slightly from last year's 1.3 percent loss rate).
– International e-commerce orders continue to spell more trouble
for retailers, with order rejection and fraud rates up to three times
higher than domestic orders. Merchants that accept orders from
outside North America reject over 13 percent of orders on
suspicion of fraud. Among orders accepted, 3.8 percent turn out
to be fraudulent -- which is nearly 3 times higher than the overall
rate.
Impact on E-commerce
• merchants rejected nearly 6 percent of orders in 2004, up from 4.6
percent in 2003.
• merchants are refusing another 4 or 5 orders on suspicion of fraud
• More manual intervention: 73 percent of merchants manually check
orders today, a 12 percent increase over last year. In addition, the
number of orders being manually reviewed rose to 27 percent of all
orders, up from 23 percent in 2003.
• The median price on fraudulently ordered merchandise in 2004 was
$150 while the median amount for a legitimate purchase was $100.
Cost of Fraud Prevention
•
The highest costs associated with the management of fraud are typically loss of potential revenue
and wages. A key source of revenue loss occurs when good orders are rejected for fear of fraud.
rejection rates during 2004 were nearly 6%, up from 4.6% last year.
•
Manual order review and its associated costs are equally threatening to merchant profits. 73% of
merchants are manually checking orders today, up 12% from last year.
•
27% of all orders were manually reviewed in 2004 versus 23% of all orders 2003. This leads to
obvious questions about merchant capability of coping with continuing eCommerce growth.
•
Only 21% of merchants expect to increase the size of their review staff in 2005, so greater
productivity among order checkers is clearly required.
•
In addition to manual review, 82% of merchants use Address Verification Service, 56% use Card
Verification Number checking, and 53% use internally-built fraud screens.
•
The number of merchants using commercial fraud screening solutions grew 55% from the year
before: 18% in 2003 and 28% in 2004.
Preventing online E-Commerce Fraud
•
•
•
•
•
•
•
•
•
•
Carefully Review Orders
Contact, Shipping & Credit Card Information
Address Verification Service (AVS)
Free Email Addresses
Document All Contacts
Domain Name Records
Above Average Order Amounts
Use Fraudulent Notices
Telephone Search
Call the Consumer
What is Identity Theft?
•
•
•
•
It’s a crime that affects 7-10 million a year
Takes many years to clear up
Ruins your credit
Many resources available
Two Types
• Account Fraud
• Application Fraud
How is ID Theft Possible?
•
•
•
•
•
Internet
Dumpster Diving
Mailboxes
Shoulder Surfing
Public Records
Government Intervention
• Identity Theft and
Assumption
Deterrence Act
• Another law allows 15
years’ imprisonment
and forfeiture of
property
Catching the Crook
• Hard
• Repeat Offenses
• Victim still suffers
Reducing Your Chances of
Being a Victim
•
•
•
•
•
SCAM
Stingy
Check
Ask
Maintain
E-Mail Fraud
There are several types of Email Fraud
• Phishing
• Nigerian Letter Fraud
• Online Auction Related
E-Mail Phishing
• Replica of an existing web page is created in
order to illegally obtain information from
Consumers
• Link sent via e-mail
• E-mail resembles an email from a legitimate
company
Recently Affected Companies
•
•
•
•
•
PayPal
Citibank
Visa
Compass Bank
Washington Mutual
Nigerian Letter Fraud
• E-mail sent that tells a story of hardship
• The e-mail solicits the help of the recipient and
promises a large payback for their assistance
• If recipient responds, the sender will usually
request an upfront payment for arrangements or
the recipient’s bank account information
Fraud and Ebay
Ebay (auction based site)
User Anonimity
Lack of Face to Face Contact
Fraud and Ebay
• Buyer Protection on eBay - What you can do if something goes
wrong.
• Fraud Alert - How you can notify eBay and your seller about your
transaction by using our online Fraud Alert.
• Protection Claim: Eligibility Requirements - Find out whether or not
you are eligible to file a claim for reimbursement from eBay for
losses due to fraud.
• Protection Claim: Coverage Provided - Information about the
circumstances under which eBay will reimburse you through the
Protection Claim program.
• Protection Claim: How to File - How buyers can file a Protection
Claim with eBay.
• Sending Payments - Find out which payment method is safest and
most appropriate for you before purchasing an item.
• Tips for Buyers - Steps buyers can take to ensure a successful
transaction.
Fraud and Ebay
• Fraud.org
– Average Loss: $803
– Top 10 Frauds
•
•
•
•
•
•
•
•
•
•
Online Auctions* ---- 28%
General Merchandise ---- 19%
Nigerian Money Offers ---- 9%
Phishing ---- 5%
Information/Adult Services ---- 3%
Lotteries/lottery clubs ---- 2%
Fake check scams ---- 2%
Computer equipment/software ---- 1%
Fake escrow services ---- 1%
Internet Access Services ---- 1%