The Factors That Lead to E-Commerce Fraud - Research Paper Example

Research Paper Name: Course: Name of instructor: Date of submission: Research Paper Introduction Due to the technological advancements, e-commerce has emerged as a successful business. The e-commerce business transaction strategy has offered a number of opportunities for growth and marketing services in various aspects of businesses. E-commerce involves the purchasing and selling of goods and services such as computer-related networks and the internet (Manzoor, 2010). In recent times, as a result of the rapid growth in technology, e-commerce is increasingly becoming a necessary component of business strategy for efficient transactions. Many companies are finding out that they are no longer confined by geographical location, but they can employ commerce to ensure that goods are made available to customers in faraway places (Turban & King, 2002). E-commerce has afforded these companies a full range of market opportunities, from local to international, that they had never achieved before. The development new business model driven by e-commerce offerings a test to information systems, and opens doors other risks (Albrecht, 2012). Comprehensive information controls that include software applications, trained personnel, physical hardware and procedures among other need to offer promise that the exchange of business information as well as dealings taking place in an electronic form fail to subject the company to risks rising from the use of the internet as a medium of data exchange. E-commerce brings a number of opportunities but a number of risks as well (Plant, 2000). Fraud in e-commerce is one of the major challenges facing companies that have integrated e-commerce into their business models such as eBay and Craiglist. Specific characteristics of the internet driven economy create pressures and opportunities that are unique to e-commerce fraud. E-commerce fraud happens when perpetrators access the firewalls and security checks and infiltrate the systems or steal money and information (Knapp, 2002). Money is usually the primary goal of e-commerce fraudsters as they can also use personal information to blackmail individuals. Problem Statement E-commerce has grown rapidly since the early 1990’s. Many people have embraced this new phenomenon and are now using e-commerce as a way of purchasing rather than move to the geographical locations of the stores. It is expected that the number of people using e-commerce will increase as more become aware of it and through broadband penetration (Walsh, 2011). E-commerce does not come without risks. This new technology has attracted people who engage in fraudulent activities (Plant, 2000). Data from agencies such as the Federal Bureau of Investigation (FBI) indicates that internet crime has been on the rise and e-commerce has been a major target for fraudsters. As businesses begin to embrace e-commerce as a business strategy, they have to grapple with the fact that e-commerce fraudsters are continually changing tact. Cases of fraud related transactions have been reported, and cases of theft of personal data have been on the rise. Personal data is mainly targeted by the fraudsters for the purposes of blackmail. Surprisingly enough, the people who engage in e-commerce fraud do not have sophisticated computer skills, but they leverage on the inability and the laxity of businesses to secure their connections and their e-commerce platforms. All people engaged in the e-commerce platforms are vulnerable to fraud as all it takes is a small mistake like revealing of passwords to unknown individuals. Like the other traditional crimes, e-commerce fraud results from the illegal activity that a person engages in to cause harm to another person. With technological advancements, the level of sophistication of the computers has led to more people being vulnerable to fraudsters. These would include activities such as misinterpretations of the material fact, the failure to provide the goods or services that have been paid for and charging or debiting customer financial accounts, telephones or any other accounts without their authorization. Purpose of the study The objective of this paper is to determine the factors that lead to e-commerce fraud and provide some recommendations that would minimize it. The recommendations would be used by businesses wanting to venture into e-commerce to know the potential risks and know the various ways by which they can be able to counter it. The specific research questions guiding this study are: What are the specific factors leading to e-commerce fraud? Why does e-commerce fraud happen and which ways the new technologies facilitate or inhibit the problem? E-commerce provides that capability for the easy, faster and cheaper method to buy and sell products, services and information via the internet. In electronic payment systems, the exchange of the value is represented by the exchange of data. Although it offers a cheap, fast and efficient method for carrying out transactions, the main challenge it has always presented in the security. Fraudulent e-commerce activities not only affect the customers who have purchased products or services, but also affected the business as a whole. In fact, the most affected is the business as the cost of the fraudulent activity is usually greater than the cost of goods sold. This is the case in cases where credit cards are the sole mode of payments. Many hidden components come with these fraudulent activities such as card association fee, ban charges and administrative costs. Another key problem for the businesses is the loss of reputation as a result of the fraudulent activity. Many customers will become dejected with such activities and would avoid the business. As a result; the business will experience low customer numbers and ultimately losses. E-commerce fraudsters are becoming more skillful and sophisticated waiting to pounce on any weakness of the system to carry out their activities. There is a need of businesses engaging in e-commerce to employ fraud management tools that would adapt and learn the changing behaviors of both the fraudsters and the legitimate users of the e-commerce platform. Case Context: eBay eBay is currently the largest e-commerce business in the world. The company originated right after the first commercialization of the web Browser. The company has enjoyed years of profits since its inception and were continuing to post good results at the end of financial years. The company has rapidly expanded all over the world and today it is an international on-line market place offering goods and services to a number of individuals and numerous small businesses. eBay offer the perfect example to the problem of e-commerce because it is the largest on-line auction maker. Daily, it lists over six million items for sale and records billions of sales each year. eBay, having grappled with the problem of e-commerce fraud for several years, has employed state-of-the-art technology that addresses the issues of privacy, availability, confidentiality and the security of the on-line transactions (Nikitkov & Stone, 2005; Plunkett, 2006). Its Solaris Operating System has proven to be effective tools for countering fraudsters. eBay also ensures it maintains the privacy and practice meet strict requirements that meet the requirements of TRUSTe to which it is a licensee. The company went a step further to acquire PayPal, which is the most advanced and trusted on-line payment system to carry out the transactions carried out on eBay (Warner, 2003). eBay also ensures that it sells branded products as it has been found out that consumers are most likely to buy branded products to alleviate the concerns related to quality. From this information, it appears that the eBay has constituted measures to ensure control over the risks of information interchange, privacy and the security of transactions. However, the e-commerce system has come to continuous criticism related to controls over product misinterpretation and the authenticity of the sellers. The problem of seller authenticity has become a major problem for eBay despite its state-of-the-art and its efficient payment system (Montague, 2011). On-line seller fraud can be defined as the manipulation of internet information to induce customers to act in ways in which illegally benefit the manipulated information provider. In as much as eBay claims only a fraction of the sales turns out to be fraudulent, information provided by its counter measures and the US Federal Trade Commission suggest otherwise. According to current information, internet auction is the most frequently reported form of e-commerce fraud and the most expensive to deal with. To counter fraud, eBay instituted the reputation feedback system followed by the establishment of the Trust and Safety department in the year 2002 (Nikitkov & Stone, 2005). eBay only provides a virtual marketplace whereby sellers and buyers can interact and hence shielding it from any liability claims. This hands-off strategy by eBay is what has made it so popular and yet makes it vulnerable to fraud (Plunkett, 2006). Cases of fraudulent sales arising from the virtual marketplace are most common given that the company does not engage in the actual selling of the products. This makes the company responsible for fraud. eBay has taken steps to scrutinize the sellers to ensure that they provide the goods they are offering and to the accepted industry standards. The trust and safety department is solely responsible for ensuring that standards and policy on fraud are implemented and monitoring of activities to ensure there are no fraudulent activities. The feedback system that the company has employed has ensured that seller and buyer behavior are regulated and ensures that future transactions are safer and much more efficient. The company also ensures the regular updating of their software to ensure that the privacy of customer information is protected, and their firewalls and networks do not expose weaknesses to the fraudsters (Warner, 2003). Case Context: Craigslist Craigslist, founded in 1995, is another company that leverages on e-commerce in the provision of various goods and services. It offers classified advertisements with various sections that are devoted to jobs, real estate properties, personal equipment, items needed by consumers and gigs among many others. Just like eBay, Craigslist has experienced a number of cases involving e-commerce fraud especially sale related fraud. There have been instances whereby the sellers of different products take advantage of the platform to provide customers with low-quality products or different products from the ones posted in the advertisements. Seller authenticity has been a major challenge in the e-commerce business strategy for Craiglist. Fraudsters have continually targeted the most vulnerable customers using sophisticated software tools that target financial accounts and personal information (Montague, 2011). Sellers have been found to copy information from legitimate sites and copied them to the site. Unsuspecting buyers would then wire their transfers to these sellers who have no product to sell. When the buyers contact the real owners of the products, they find out that the sellers on the site know nothing about those products but are real conmen. This is what is referred to as online escrow fraud. Having experienced a number of fraudsters over the years, Craigslist has put in place measures aimed at countering e-commerce fraud. The company has invested in latest technologies that ensure the protection of consumers’ personal information and the security of the online transactions. Given that fraudsters have “upped their game’’ the company is continually investing in ICT technologies to ensure the protection of consumers and the sellers. They have set up a department that scrutinizes seller information and data before they allow them to post in their site. These moves have seen cases of e-commerce in the company dropping significantly. Countering online fraud has enabled the company to maintain its reputation as an online market for various goods and services (Moscove, 2001). Rationale Given the rapid growth of e-commerce it would be necessary to discuss further the potential risks associated with it and the implications to the victims and the business. It has been noted that the fraudsters in e-commerce usually have made similar calculations to those of business owners. They have identified their target markets and their consumer base. Using the right forms and tools of technology, they are bound to make huge returns with limited risks. Hence, e-commerce fraud has a number of implications to both the victims, business owners and the general industry as a whole (Khosrow-Pour, 2004). The victims suffer financial losses, blackmail and invasion to their privacy due to their stolen personal information. The business owners, on the other hand, suffer financial losses, face legal suits and have to grapple with the fact of compensating customers who are victims. The businesses also incur losses and their reputation in the industry is usually damaged as a result of these fraudulent activities. The industry as a whole faces the huge problem of having to come up with policies aimed at curbing e-commerce fraud. A number of factors have been found responsible for the engagement in online fraud, which includes biological, psychological and socio-economic factors (Bauknecht et al. 2006). Taking all factors into consideration, it has been found out that all criminals usually have a profit motive behind their minds. All e-commerce fraudsters have the technical expertise in computer technologies and hence able to identify all the leaks in a given platform. The fraudster’s business model is based on the principle of maximizing profits while minimizing the associated costs. They exploit vulnerable customers to their full potential. Other common tactics employed by the criminals is to incorporate many spam emails and false advertisements. An extensive body of research exists with regards to the criminals, but less is usually available about the victims of this fraud scheme. One of the main problems with e-commerce fraud is that the victims do not realize immediately that they have been victimized in the first place. To add on that, many of them do not know where to direct their complaints when they discover they have been victimized. The regulatory authorities usually receive a number of complaints from businesses, individuals, special interest groups and the general public, but their response is usually concentrated in an area where the damage is not concentrated. Many sellers often take advantage of the customer’s inability to verify the information that has been presented by sellers on the e-commerce platform. Online transactions experience the problem of asymmetric information, as the sellers seem to possess much more information than the buyers. The products offered contain attributes that cannot be evaluated until the time of purchase when a person wants to consume them. The product price might be low enough, but the personal cost of carrying out a quality assessment is usually lacking. As a result, many customers become victims of fraudulent sellers. In a physical setting, buyers can physically view and assess a product but in e-commerce, this is not a possibility as they only have to rely on the available information about the product or service. E-commerce fraudsters take advantage of the asymmetries of information to lure vulnerable buyers into their fraud schemes (Chaudhury & Kuilboer, 2002). The fraudsters also leverage on their practical anonymity in such a forum. Contrary to popular opinion, victims of e-commerce fraud are not people who are poorly educated, lack technological expertise or the elderly. The internet together with the trust that people have for particular websites has enabled fraudsters to deceive people despite their education backgrounds and their levels of income. As a result, all customers become vulnerable to e-commerce fraud (Ba & Pavlou, 2002). Businesses also take a beating from e-commerce fraud. The costs associated with fraud are higher than the actual costs of the products (Joseph, 2012). The hidden costs such as credit card charges by banks and other costs sum up making the costs of fraud higher. Well-established brands are also prime targets of fraudsters due to the trust that has been built between the customers and the business. It becomes difficult for unsuspecting customers to differentiate between genuine advertisements of products and those that are scams. As a result of fraud, businesses lose their reputation that ultimately results in low product sales. The business owners have to take practical steps to secure their systems and ensure the security of the transactions. This usually comes at a high cost. Due to the technological expertise of the fraudsters, the businesses must invest in sophisticated systems that will ensure protection of customer information and the security of transactions. The industry as a whole needs to come up with policies to regulate online businesses and measures to curb e-commerce fraud. Exploration This would be an exploratory study that would aim to identify the specific factors leading to e-commerce fraud. This research will mainly involve the exploration of secondary sources. These would involve academic literature, books and journals. A huge body of evidence is available on fraud in e-commerce (Albrecht, 2012). Most of the research carried out on the topic has mainly focused on the causes of e-commerce fraud and the implications to victim's businesses and the e-commerce industry as well. As a rapidly growing business strategy, the topic of e-commerce fraud has been the subject of many researches carried out as they try to come up with solutions to curb the problem (Reuvid, 2011). This research study would mainly focus on the specific factors leading to e-commerce fraud, how the new technologies contribute to this chronic problem, how victims play a part in fuelling e-commerce fraud and how sophisticated the victims and the strategy are. E-commerce fraud is a relatively new phenomenon but has a number of similarities with the traditional crimes as they are both illegal and target those people who are vulnerable (Cahill, Lambert & Pinheiro, 2000). E-commerce fraud has been found to target unsuspecting individuals without the knowledge of sophisticated technologies currently in the market. The new technologies have offered new software that can be used to e-commerce platforms and websites and target customer financial accounts and personal data that can be used later on for the purposes of blackmail (Ba & Pavlou, 2005). New software can guess business or personal passwords and enable the intrusion into their accounts. As technology advances, the fraudsters are also coming up with ingenious ways of executing their plans on vulnerable business systems and customers (Fruhling & Digman, 2000). The problem of seller authentication has become one of the major problems in the e-commerce industry as the scrutiny of their qualities, and their products are proving to be impossibility. With e-commerce offering new ways to transact businesses faster, cheaply and efficiently, it is increasingly becoming a necessity for the businesses to know how vulnerable the strategy is to fraudsters (Moscove, 2001). Identifying the various vulnerabilities would enable the adoption of efficient strategies that would go a long way in solving the problem of e-commerce fraud. In as much as new technologies offer new strategies for the fraudsters, they also offer methods by which businesses can secure their systems to prevent such fraudulent activities. The regulatory institutions must also come up with policies that would offer protection to both the businesses and the customers (OECD, 2003). References Albrecht, W. S. (2012). Fraud examination. Mason, OH: South Western, Cengage Learning. Ba, S., and Pavlou, P. “Evidence of the effect of trust building technology in electronic markets: price premiums and buyer behavior,” MIS Quarterly (26:3), 2002, pp. 243-266. Cahil M. H., Lambert D., Pinheiro J. C., Sun D. X. (2000), Detecting fraud in the real world, Handbook of Massive Datasets, Kluwer Academic Publishers, pp. 911-929; Chaudhury, A., & Kuilboer, J.-P. (2002). 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