E-Commerce and Internet Auction Fraud: The E-Bay Community Model
Date: April 29, 2004Source: Computer Crime Research Center
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Next(C) Secure Payment Mechanisms:
Payment methods constitute a very important factor of fraud. As previously stated, 80% of online auction fraud victims used money orders and cheques for payment. Thus, it is obvious that cash, money orders, and cheques are not the best options for payment. Alternative methods of payment that could minimise the risk of fraud are: credit cards and secure online payment companies.
Credit cards are a relatively secure form of payment against fraud because of the existence of charge back guarantee schemes used in consumer disputes (B2C and C2C). Credit card charge back is a banking facility, which enables a cardholder who paid for goods or services to dispute certain or all aspects of the transaction through the payment card issuer. This form of consumer protection, which gives the consumer the right to claim against the card issuer, is sometimes mandated by national laws. It involves the return of a transaction from the issuer of the card used by a consumer to the financial institution that ‘purchased’ the transaction from the merchant. Charge backs generally apply to all card-based payments, irrespective of whether a card was actually presented.
Although, in cases of fraud chargeback guarantee could be effective, yet the personal bank and card information of the victim will be violated and revealed to the perpetrator.
In order to maximise the level of protection, many credit card issuers such as Visa and MasterCard offer zero liability for unauthorised use of card and account information when shopping online such as American Express Ironclad Guarantee Scheme, although the drawback is that in some cases this protection scheme is limited to US based cards.
Another alternative secure method is paying through well-established e-payment companies, which enable the buyer to open an account with the company, and then the money is securely transferred to the seller without disclosing any bank or credit card information.
According to eBay policy, a wide range of payment options are available including: credit cards, money orders, personal and cashier cheques, cash, and wire transfer. Furthermore, in October 2002 eBay has acquired PayPal, one of the biggest e-payment companies which constitutes a valuable addition to eBay payment options. PayPal has over 40 million registered account holders worldwide. In addition to being a secure medium for payment, PayPal offers a buyer protection scheme, where buyers are eligible for up to $500 of coverage at no additional cost, for items purchased on eBay and paid for through PayPal. Moreover, PayPal offers a seller protection scheme against chargebacks due to fraud and a money back guarantee, which if purchased enables buyers to be fully reimbursed for purchases under $1000 by returning the goods to PayPal within 30 calendar days following the date of payment or seven days after receipt, whichever is earlier.
(D) Escrow Services:
Companies offering genuine escrow services though could be considered a form of secure payment mechanisms takes security level a step further by allowing buyers to escrow their payments until they have inspected, approved, and accepted the delivered merchandise. The function of online escrow services is a very similar system to the documentary letter of credit, and protects the interests of both buyer and seller against fraud and the risk of non-performance on one side or the other. Online escrow is often used in high value transactions.
eBay, recommends using escrow guarantees provided by Escrow.com for merchandise of $500 or more.
The possible drawback for escrow services is that they require a mutual agreement between the buyer and seller and some sellers refuse using escrow services as it could delay the transaction, drive up its cost, and give bidders the opportunity to return merchandise even when it's exactly as advertised.
(F) Feedback Rating Schemes:
Feedback ratings systems is a software-supported reputational system, which enables a potential e-buyer in electronic consumer transactions to check the reputation of the seller through his/her feedback rating that is accessible from the page advertising any item s/he is selling. This scheme is adopted by eBay, as a deterrent to fraud because most sellers are eager to maintain their good reputation in order to attract customers. The feedback system is based on comments from other eBay users and operates by granting positive points for positive comments and negative points for negative comments.
Once a feedback comment has been placed it cannot be changed, however the drawback of this scheme is the possibility of negative retaliatory feedback comments, which could affect the reputation of either the buyer or the seller. Furthermore, buyers or sellers with negative feedback rating will not prevented from using a different ‘user name’ or from establishing an account on a different auction site. Accordingly, eBay encourages buyers to report questionable sellers to the site-sponsored Community Watch, adding another layer of protection and regulation.
This scheme will not be effective against or deter fraudulent one-shot sellers who do not intend to engage in subsequent transactions at least on the same auction site.
(G) Trustmark Seals:
A trust mark is used by a commercial body, which offers subscribing organisations its services against the payment of a subscription fee. The subscription may be coupled with a licence agreement, which regulates the use of the body’s trust mark by the subscribers. The enforcement of the body’s decisions may be ensured by the threat of the withdrawal of the trust mark and the termination of the subscription. Trustmarks may be offered by private organisations (including trade associations and consumer organisations) and some ODR providers. Trustmarks generally boost consumer confidence in online transactions by ensuring that the seller is committed to good selling standards as set by the licensing body. Thus, bidding in online auctions over goods offered by sellers bearing a trustmark seal minimises the risk of fraud to a great extent.
On eBay trustmarks are valued and two of the most powerful seals are: PowerSeller and SquareTrade.
The PowerSeller icon displayed next to an eBay seller ID acts as a strong assurance for buyers that they are dealing with an experienced reputable seller who has consistently sold a significant volume of items, maintained a 98% positive feedback rating, and provided a high standard service.
The SquareTrade seal displayed next to a seller ID proves that the seller’s identity and contact information has been verified, s/he is committed to mediating any disputes, adheres to good selling practices. Furthermore, Square Trade offers buyers who buy from SquareTrade seal holders coverage up to $250 minus a $25 deductible fee against fraud, which is in addition to and supplements eBay and PayPal protection schemes.
Despite being a reliable sign of good reputation and trust, many buyers are not aware of trustmarks and their potential importance. Based on the Eurobarometer survey, only one in ten citizens in 15 European countries has heard of Internet trustmarks.
(H) Complaint Centres and Online Dispute Resolution Services:
Online dispute resolution services are increasingly becoming popular and are exceedingly gaining momentum. Although online dispute resolution services are not exclusive to online auction disputes or fraud, yet the existence of swift and effective dispute resolution services in online auctions adds an element of confidence and trust for both buyers and sellers.
Furthermore, the relative proliferation of fraud complaint centres sponsored by governments, consumer organisations, and online auction sites could provide an effective method to tackle fraud and increase awareness among genuine buyers and sellers. Accordingly, online auction fraud complaints could be filed with the Better Business Bureau, the US Federal Trade Commission, the IFCC (a partnership between the FBI and National White Collar Crime Centre), and the online auction site used.
To complete their fortified matrix of anti-fraud measures, and in addition to the possibility of filing a fraud complaint with eBay, the latter uses Square Trade as their dispute resolution provider, which provides a swift services where parties could settle their dispute through direct negotiation or with the help of a mediator through a process of online mediation. Sellers holding a SquareTrade trustmark are committed to participating in good faith in any possible disputes with Buyers through Square Trade’s online dispute resolution services.
Square Trade has successfully resolved over 200,000 disputes through their panel of more than 200 mediators. Thus, eBay users could resort to Square Trade for not only a swift and effective dispute resolution process but also a cheap one, as the fee for hiring a mediator for eBay disputes is $15, and it is free to file a case, respond to a case, and for each party to use the Direct Negotiation tool.
The possible drawback for the utilisation of online dispute resolution services are the general requirement of mutual agreement between the buyer and the seller and the willingness of participating in the process in good faith, which is difficult in disputes based on fraudulent conduct. Equally, the absence of a binding decision in many cases could be a negative aspect. However, such services could be valuable in disputes involving the quality and standard of the delivered...
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