In the situation of auction fraud, the individual bidder is left holding the bag. However, in the case where an e-business accepts a credit card and ships the goods out, it is the merchant that will be left to deal with the loss. Typically, e-retailers can expect that a certain percentage of their daily on-line sales are fraudulent. With already razor-thin margins, this is a very critical problem for on-line merchants. As e-commerce becomes more prevalent, there has been an increase in the use of credit-cards payments, from 11% in 2000 to 28% in 2001 and a parallel increase in fraud (see Table 8.2).
2000 | 2001 | ||
---|---|---|---|
Money Order | 43% | Money Order | 29% |
Check | 30% | Credit Card | 28% |
Credit Card | 11% | Check | 18% |
In fact, this is a far larger problem for e-retailers than they are willing to admit. A popular seller of electronic products, for example, which on average makes about 6,000 sales a day, acknowledges that about 1,000 of those sales were made using stolen credit cards or fraudulent numbers. This popular e-retailer admits the amount of fraud can range from 14% to 20%, depending on the type of product being purchased.
This is further reflected in the statistics reported by fraud.org, which found that overall losses for 2001 were $4,371,724, up from $3,387,530 in 2000. The average loss per person also was on the increase from $427 in 2000 to $636 in 2001. There are significant differences in the per-person averages for each product category, with hardware and software being especially high targets of fraud (see Table 8.3).
Top Fraud Product Targets | Average Loss Per Person |
---|---|
Computer equipment/software | $1,102 |
General merchandise sales | $845 |
Internet access services | $568 |
On-line auctions | $478 |
Information adult services | $234 |
Of course, hardware as well as other high-end electronic equipment is fairly easy for criminals to sell via auction sites. Compounding the problem for e-businesses is that because there are no shopper signatures with these fraudulent on-line transactions, they must absorb the bulk of the monetary deficit. The e-businesses are stuck with the entire loss because the credit-card companies only extend the $50 protection limit to the consumer cardholders and not to merchants.