Internet Fraud - The E-Bay Community Model
Date: April 29, 2004Source: Computer Crime Research Center
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Since their first appearance in 1995, online auctions have increasingly gained momentum and accelerated the pace of Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C) e-commerce. In the autumn of 1998, 142 auction websites, 90 percent of which conducted B2C transactions, generated almost $100 million of trade each month. However, as e-commerce lacks face-to-face interaction and transactions are concluded online there exists a margin of risk with respect to security of payment, data protection, and transaction fraud. According to a very recent survey conducted by Eurobarometer, the prime reason stated by consumers for not trusting the Internet for trading purposes was security of payment, where virtually 73% of European consumers who have not used e-commerce gave this reason. Delivery issues were also a great concern, where 37% indicated that this is the main reason for their mistrust of e-commerce. Similarly, 36% their lack of trust was based on their worries of getting a warranty or refund.
The present paper seeks to examine transaction fraud in online auctions, and analyse some of the same harbour principles and fraud protection measures that aim to curtail and minimise online auction fraud. This analysis will be pursued in light of eBay policies, as a case study for the most successful online auction. Accordingly, the paper will be divided into two parts: the first will examine the phenomenon of online auctions, and the magnitude and forms of transaction fraud, and the second will analyse some of safe harbour principles and fraud protection schemes and their feasibility.
Online auction sites are amongst the top destinations for e-business and e-commerce trading. There are more than 250 online auctions so far. The most well-established being: eBay, Yahoo, and Amazon auctions.
It is worth noting that over 1.3 million transactions a day take place on Internet auction sites, nevertheless only a small percentage of this figure result in fraud. However, the number of fraudulent transactions should not be undermined, as online auction fraud ranks top of all cyber fraud complaints. The US Federal Trade Commission (FTC) stated that in 2002 auction fraud constituted the largest category of internet related complaints in the FTC’s Consumer Sentinel database, which logged more than 51,000 auction complaints in that year. Similarly, according to a recent survey by the National Consumers League (NCL) 63% of Internet fraud resulted from online auctions where the average loss was $ 478 per person.
In 2003, the US FTC released a report on Consumer Fraud and ID Theft, where Internet auctions fraud alone accounted for 48% of Internet-related fraud complaints, which resulted in the loss of $ 437 million in one year only.
Before examining the various forms of Internet auction fraud and its raison d’etre, it is necessary to state that online auction fraud is not exclusive to consumers or buyers; businesses and sellers also could be victims of online auction fraud. However, consumer buyers represent the major category of victims of auction fraud.
The more protection schemes are offered by an online auction site, the less cases of fraud could occur, which promotes e-commerce and render the site a safe market place. Thus, on global auction sites such as eBay, which offers many forms and levels of protection and where millions and millions of items are on sale everyday, cases involving fraud do not exceed several thousands each year, which constitutes a relatively small percentage of the total amount of transactions.
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