Fraudulent Online Product Inquiries
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The impact of fraud is felt unevenly. As fraudsters succeed against businesses in an industry, they beget copycatters who continue to target that industry. |
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Percentage of Inquiries that are Fraud Attempts |
Percent of Businesses Affected |
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75% + |
3.06% |
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50-75% |
7.14% |
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25-50% |
15.3% |
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10-25% |
24.5% |
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0-10% |
50% |
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Average loss to fraud |
$40,032 |
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Average percentage of online inquiries that are fraudulent |
19.29% |
A recently released survey of B2B merchants reveals 19.29 percent of the purchase inquiries they receive online are fraud attempts. Of these, payment fraud is the most common form of attack, representing 60 percent of fraud losses suffered by merchants in the past five years.
“The inquiry may seem genuine, with the purchaser possibly asking all the right questions,” says Richard Barker, CEO of Kitmondo, an online global marketplace for buyers and sellers of business and industrial equipment, which conducted the 2014 Small Business Fraud Survey. “But then they try to buy fraudulently — such as asking the merchant to send the product prior to payment or engaging in check fraud or credit card fraud.”
In the case of a bogus or stolen credit card, the credit card company will charge the transaction back to the merchant and the merchant carries the loss unless he has some form of insurance — which Barker observes is relatively uncommon.
“Fraudsters rely on two things — numbers and naiveté. Pumping huge volumes of inquiries into enough businesses gives them critical mass, and naiveté or lack of vigilance on the part of some business owners gives the fraudsters scope for success,” Barker explains. Yet for businesses, taking the time to vet all product inquiries puts considerable strain on their resources.
Addressing this problem, Kitmondo relaunched this past March with a change from the open platform it had offered for eight years to focus on a fraud-free forum that is designed to protect both buyer and seller by serving as a clearing house for the transaction. “Unless we get money that is cleared funds, the seller doesn’t have to ship the goods,” Barker says. Conversely, if the product is not delivered, the funds can be returned to the buyer.
Using scoring indicators developed from its historical data on purchase behavior, Kitmondo assesses purchase inquiries for fraud indication. Among the red flags that prompt it to advise a seller against making the transaction are requests to send equipment to let the buyer try it prior to purchase. While such a request is common in the equipment world, Barker says, it is important to verify the addressee is not a bogus company. “There is a trail that most authentic [companies] leave online,” Barker says, observing that a lot of fraudsters use an assumed identity. “Although it’s not a fool-proof tool, it they don’t have a social trail, a LinkedIn account, a work email address, it starts to paint a negative picture.”
Merchants can also vet an inquiry by asking probing questions about how the buyer intends to use the product. Explains Barker, “With industrial or professional equipment, most buyers in our field are pretty educated about how to use the product.” A response like “Oh, it’s not for me; it’s for someone else” should raise suspicions about the legitimacy of the purchaser.
And Barker notes that almost all genuine buyers will try to negotiate, asking for such allowances as a discount or flexible payments. “Fraudsters are not too worried about price because, clearly, they don’t intend to pay. So, particularly if it’s a new customer, this is a big red flag.”
Barker notes that a fraudster will work to gain the seller’s trust but then try to change the deal at the very end in the hope that the seller feels invested in the transaction or believes trust is truly established. “Be totally vigilant to the very end of the sale,” he advises.
