Online Fraud
by Peter Thiruselvam / iEntry Editor-in-Chief
ClearCommerce Corporation, a provider of
payment processing and fraud protection software for e-commerce,
studied 1,100 of its best online merchants to get a better
understanding of online fraud. In doing so, they analyzed 6
million transactions from 40,000 customers who were collectively
doing business with the company’s merchants.
ClearCommerce’s white paper on fraud prevention
states that "fraud rates for orders with IP addresses from certain
countries outside the U.S. are more than 10 times the typical rate
from US orders. In addition, 21 percent of fraudulent orders can
be identified by inconsistencies between the consumer’s IP address
and their reported billing, shipping or card issuer countries."
Many experts feel that last year’s figures will
be even higher due to the activities of organized crime taking a
larger role in online fraud. Some officials from top US
intelligence agencies also believe that terrorists are stealing
credit cards to help fund their organizations. To sum up the
seriousness of the online fraud, Gartner Inc., one of the major
online information researchers, reported that loss because online
fraud/identity theft accounts for USD$700 million dollars. This is
19 times that of offline fraud for the same period of time. This
loss accounts for 1.14 percent of the total online sales for 2002
(USD$61.8 billion).
Additionally, it is not only the actual fraud
but the perception of fraud which takes a toll on the bottom line
of an ecommerce business. One of the high-powered analysts for
Gartner said, "Merchants were rejecting around 5 percent of
Internet transactions, on average, as ‘suspicious,’ and at large
retailers that sell more than 25 percent of their goods and
services online, the figure was up 7%."
The number of frauds vary by country. Below is
a breakdown of the countries from where the most fraud originates
as well as the least. According to ClearCommerce, approximately 6%
of all online transactions from such countries as Malaysia and
Israel (who are actually on the bottom of the dirty dozen show
below) are fraudulent.
|
Countries from where the most online fraud
originate. |
Countries from where the least online fraud
originate. |
When the fraud is perpetrated from within
the U.S., these are the states with the largest percentage of
fraudulent people |
|
1) Ukraine
2) Indonesia
3) Yugoslavia
4) Lithuania
5) Egypt
6) Romania
7) Bulgaria
8) Turkey
9) Russia
10) Pakistan
11) Malaysia
12) Israel |
1) Austria
2) New Zealand
3) Taiwan
4) Norway
5) Spain
6) Japan
7) Switzerland
8) South Africa
9) Hong Kong
10) United Kingdom
11) France
12) Australia
13) United States |
1) California - 21%
2) Florida - 10.1%
3) New York - 8.3%
4) Texas - 6.0%
5) Penn. - 4.5%
6) Illinois - 3.9%
7) New Jersey - 3.7%
8) Michigan - 2.8%
9) North Car. - 2.6%
10) Virginia - 2.5% |
I would add Nigeria to the
international dirty dozen, with the "help me get my money out of
here" email scam. It is also known to be one of the major players
in the shipping the goods to a freight forwarder to circumvent the
international shipping scrutiny. By the way, most of the victims
of this scam pay through account debits and wire services.
Top Internet
Frauds
|
Jan.-Oct. 2001 Top 10 Frauds |
Percentage of total fraud |
Average Loss Per Person |
|
Online Auctions |
63% |
$478 |
|
General Merchandise Sales |
11% |
$845 |
|
Nigerian Money Offers |
9% |
$6,542 |
|
Internet Access Services |
3% |
$568 |
|
Information Adult Services |
3% |
$234 |
|
Computer Equipment/Soft. |
2% |
$1,102 |
|
Work-At-Home |
2% |
$120 |
|
Advance Fee Loans |
1% |
No Data |
|
Credit Card Issuing |
.6% |
No Data |
|
Business Opportunities/franchises |
.4% |
No Data |
|
2001 Top 5 Methods of Payment |
Payment used in general merchandise fraud |
|
Money Order - 29% |
Credit Card - 41% |
|
Credit Card - 28% |
Money Order - 21% |
|
Check - 18% |
Check - 16% |
|
Bank Account Debit - 6% |
Debit Card - 6% |
|
Debit Card - 5% |
Wire - 4% |
Source: Internet Fraud Watch
|
RoDI
ISOC
IWA
ARTT
RTS
WQC 2003 
ISAQ 2005