Friendly Frauds is nightmare for Etailing boom

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Etailing has been successfully operational since two decades and can be traced back to when Dell Computer reported multi million dollar orders taken at its Web site in 1997.

Etailing is a subset of the broader phenomenon of eCommerce. Ecommerce under its scope encompasses all the online transactions while ‘etailing’ is a specific term catering to sale of product merchandise and excluding the sale of services like movie tickets, airline bookings or matrimonial portals.

India’s eCommerce market is at a steadily growing pace with new consumers being rapidly added to the database daily.Data suggests that India’s growing internet savvy consumer base will rise to 180 million users by 2020 with an increasing class of mobile internet users emerging speedily.The high volume of sales generated by the online retail industry has a tremendous impact on the global economy and has also created abundant employment opportunities worldwide.

With a constantly rising consumer base and convenient anonymity afforded by the internet, the emerging etailing sector is no exception to fraudulent activity. Major corporations as well as smaller entrepreneurs are repeatedly attacked by fraudsters. And on many occasions, companies are unable to identify the criminal activity until it occurs repeatedly. It can take online retailers up to a month to identify the occurrence of fraud and to initiate any action.

Etailing Frauds

E commerce fraud is rising at an alarming rate and efforts to combat this activity are still in an embryonic state. For retailers etailing frauds is a huge liability because the cost of fraud is very high. While most customers are only liable for small part of the cost of fraud, retailers are left to deal with the entire cost of theft.

While some retailers resort to tactics such as blacklisting of fraudulent credit cards or manual review of orders, these methods are juvenile in dealing with the online fraudster. Often times, consumers falsely claim to not have received a product they ordered online. A genuine credit card is used by the customer and the product is received by them, yet they dispute the transaction with the bank. This is the new face of ‘Friendly-frauds’.

Friendly Etailing Frauds

Friendly frauds have none of the characteristics of the typical fraud committed by online criminals. The customer is genuine, so is their credit card and the delivery address. Nothing except the dishonest intent of the customer is fraudulent.

This type of fraud poses a challenge for investigators because it originates from legitimate but dishonest buyers. The customary fraud management techniques of using reputable payment gateways and following standard security practices with credit cards no longer act as a shield to combat etailing frauds.

Forensic Accountants are of the opinion that first party fraud accounts for approximately ten times more in value when compared to the losses from all third party frauds such as identity theft, counterfeit fraud and payment gateway crimes.

It would not be incorrect to assume the potential participation of internal employees in carrying out these etailing frauds. Abusing the merchant’s return policies, allowing the customer to keep the purchased good as well as refunding their amount/sending duplicate deliveries and even issuing gift vouchers to ghost customers are some of the mechanism through which employees might be involved in fraudulent acts.

The anonymity afforded by the internet combined with the lacuna in the investigative procedure of online fraudulent activity, e-commerce is a lucrative space for organized crime circles. The possible involvement of criminals indulging in planned etailing frauds cannot be ruled out.

Effective and accurate fraud prevention mechanisms are a need of the hour to reduce the financial and reputational burden of e-commerce fraud. Retailers, Online Merchants and even financial institutions are not immune to the wrong doing of the fraudster.

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