In our industry we tend to focus on two kinds of online fraud: consumer fraud, where the consumer is misusing credit card details and other payment methods, and money laundering, where criminals use payment services to conceal the origins of illegally obtained money. There is however a third kind of deceit which deserves at least the same level of attention: online merchant scams.
Online Merchant Fraud means criminal activities where consumers lose money, confidential data or other assets via a deceptive online act. There are many types of online scams from online shopping (products not being delivered), fake products being sold, cryptocurrency trading (men have a tendency to fall for these), investment plots promising 1% daily returns (popular in low income countries like India and Indonesia), Ponzi and pyramid schemes (mainly targeted at elderly), subscription scams (generation X & Y), romantic dating scams (victims are mainly middle-aged women).
While being a scammer is probably the second oldest profession, since the start of the coronavirus crisis there has been seen a traffic increase with 40% on Scamadviser.com. Firstly, mainly around masks and hand sanitisers which were not delivered. Currently, there is a general rise around all kinds of scams.
Scamming has become Big Business
Online fraud has been increasing for years as the graph below shows. Scamadviser’s sources state that several crime networks are moving away from human trafficking and narcotics towards online scams, as they have a low risk of getting caught, require few upfront investments, and are extremely profitable.
Figure 1: Billion Lost and Number of Complains in the USA.
Source: FBI Crime Complaint Center, 2019
The second reason why the number of scams is exploding is that, with COVID-19, some crimes have become more difficult to execute, as border controls are enforced more strictly.
In the last few months, Scamadviser has been confronted with several networks which specialise in one kind of dubious practice.
These networks are increasingly meeting global ecommerce standards, offering multilingual websites, 24-hour pre-sales chat support and a wide range of payment methods. They not only use social media to gain traffic but also use paid advertising, especially on Facebook and Google. They can easily afford the advertising fees as their profit margin is nearly 100%.
They do not operate in their own country and keep the number of chargebacks and complaints per registered company low to stall the moment of being banned by Visa, Mastercard, PayPal, or the payment service provider. After being banned on one website, traffic is redirected to the next website and registered company and the game starts anew.
Online scams are hurting online trade & payment
The sharp rise in online merchant fraud is starting to affect the ecommerce industry. Consumers are becoming hesitant to buy online or are falling back to ‘100% safe’ sites such as marketplaces.
This trend is not only hurting smaller online initiatives and start-ups which yet must build up consumer trust. It is also harming whole countries. The number of scam sites from China has reached such high levels that many western consumers are becoming hesitant to order anything from an Asian looking website. Likewise, Chinese consumers looking for exclusive brands are hesitant ordering from a ‘.ch’ (the Swiss domain extension) site, fearing it may be fake.
The growth of online scams is hurting the payment industry. Professional scammers have proven capable of setting up a company in bulk. Once identified as a scam, they simply hop to the next payment service provider or ‘just in time’ founded company. Only fingerprinting of the site itself allows fast identification of an online scammer.
Central registration is a must
In the last few months, Scamadviser.com has worked on an ad-hoc basis with Europol and other parties to identify corona scammers. In the Netherlands, online scams can be reported to at least 7 different entities, who, due to the GDPR regulations, are often not allowed to share data. In other European countries online scam registration is often very decentralised (up to local police stations) or not organised at all.
Each payment method and PSP is maintaining its own ‘black list’ of scammy merchants, allowing criminal networks to keep hopping from service provider to service provider.
Taking into consideration that only 3 to 5% of the consumers who get scammed online actually report the scam to at least one authority and the fact that professional scammers distribute their activities across the globe, scamming is becoming a very attractive and ‘safe’ business.
Central registration of online scams, at least on a European level, but preferably global would be required to quickly identify online criminal networks. Combining reports from national police forces, consumer authorities, with complaints received by payment providers and feedback on review sites and social media allows quick identification of websites causing harm.
Scam reports can be linked together using fingerprint technology to identify scammers utilising the same scam across multiple websites. Clustering scam reports not only allows police forces to focus their enforcement activities, it also prevents double work across countries. In short, there is work to be done by entities such as Europol and Interpol to make the Internet a safer place to buy.
This editorial was published in the Fraud Prevention in Ecommerce Report 2020/2021, the go-to source in securing transactions while offering a frictionless customer journey.
About Jorij Abraham
Jorij Abraham has been part of the international ecommerce community since 1997. He has been ecommerce manager at Bijenkorf, TUI, online publisher at Sanoma Media, and Director of Consulting as Unic. He also co-founded two companies: eVentures Europe and vZine. From 2013-2017 Jorij has been Director of Research & Advise at Thuiswinkel.org and Ecommerce Europe.
About Ecommerce Foundation – Scamadviser
The mission of the Ecommerce Foundation is to foster global digital trade. The company realises its goals amongst others with Scamadviser.com. Scamadviser is an online algorithm to identify online stores not delivering goods, shops selling fake products or sites offering high risk or illegal products and services.
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