By S. Bronstein

ScanVerify.com Founder

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Merchant Fraud

ABSTRACT

There is two types of online fraud that concerns most tangible goods: buyer fraud and merchant fraud. Each of these types of fraud's affects the opposite party in a negative way. In other words, merchant fraud hurts the buyers and buyer fraud hurts the merchants. In this article we are going to focus on merchant fraud.

WHAT IS ONLINE FRAUD

Online merchant fraud is rampant. Why? Because nowadays almost anyone can open an online store. And yes, it doesn't take more than one person to do so. Let's compare an online store to a real store. To open a real store, one needs to committ to a property lease, purchase invetory, signs, hire employees, register a business with the city. They can't simply disappear in one day. To open an online store, one needs to register a domain name ($10 a year) and purchase a hosting account ($5 a month) load shopping cart software and fill it with products. It is impossible to locate the identity of an online store owner, unless they reveal it themselves. Their hosting company will not do it unless they are served with a court order.

To illustrate merchant fraud, let's give a few examples.

1) Products sent not as ordered: you order a $1000 item, but receive a $200 item, or product arrives broken. This type of fraud is hard to fight, if the merchant insists they sent the correct product.

2) Phishing: fake websites that look like legitimate sites, such as a bank site (Wells Fargo) or Ebay. These are looking to steal your information, then use it in their own interests.

3) Fake stores: online stores, often looking sleek. The object is to get your credit card information. Often have very good deals, low prices, etc.

4) Simply unresponsible merchants. These people are not in business to specifically defraud you, however they have poor customer services, poor quality merchandize and overall not a pleasant experience.

HOW TO FIGHT ONLINE FRAUD

Online fraud, well just as any fraud, is impossible to eliminate 100%. Online fraud, or CNP (card not present) fraud is more frequent than CP (card present) fraud, because it is often conducted across large distances or countries. The perpetrator feels more safe from persecution. Plus the victim is unable to see the people they are dealing with and determine if they look and act suspicious. Also, neither the card itself nor any form of ID need to actually be present, most often the thieves simply have the information.

1) Feedbacks. Companies that uses this most successfully is Ebay and Amazon. However, there is major problems with feedbacks. A lot of times, satisfied customers never leave any feedback. Unsatisfied customers are much more likely to leave feedback, negative, of course and this creates a skewed negative image of the merchant. Also, feedback as an online phenomenon that is clearly not needed to be a successful merchant, just look at brick and mortar stores like Walmart and Best Buy, which are doing just fine with no feedback system. Another problem with feedback is that it only works if merchants sell through Amazon or Ebay and pay their fees. If a merchant wants to sell independently through their own online store, they have to use feedback from sites such as ResellerRatings.com or BizRate.com. Both of these sites feedback systems are flawed. They are too complex, requiring registration and email confirmation. They are also subject to false feedbacks. In other words, people that have not even purchased from the merchant can leave feedback. For example, a merchant's competitor can leave negative feedback. Also, the merchant themselves can pretend they are a buyer and put positive feedback. No foolproof feedback system has been developed for totally independent online stores.

2) Third party verification. Websites, such as the one I founded, ScanVerify.com, verifies an online merchants and issues them a "seal of approval", which is a web seal they can display on their website. A customer can verify this seal by clicking on it and making sure the url from which the seal is displayed is "scanverify.com". It is possible to fake the seal, however, the url will be different, so a foolproof way of checking legitimacy of a seal is to look at its URL. What does ScanVerify.com do? It verifies Driver's license, business registration, phone number and email of a merchant. We also collect customer complaints and mediate any disputes. We do not make any guarantees regarding outcome of a transaction with any of our verified merchants, rather we give the customer one more tool in their assertion of the merchant. A merchant that has passed ScanVerify.com security checks is much less likely to committ merchant fraud. The webseal also increases a merchant's sales, because their customers, especially first time customers, feel more secure about shopping with them.

3) Other ways of reducing online fraud. If a deal is too good to be true, it probably is. Before you shop from an online store, try to get in touch with them by phone or email. If you are not getting a reply from either, do not shop there. Google the merchants phonenumber and domain name and see if any negative comments come up. This could be misleading, but it's still helpful to read through. Use a gift-card when shopping. Gift-cards are like debit cards and can only be withdrawn to a certain amount.

Unfortunately, fraud cannot be eliminated 100% and will always be present. The current banking and credit card systems have major flaws that allow fraud to go through. Some companies, such as Capital One, will give a credit card to almost anyone, generating a lot of identity theft. Websites such as Paypal, which advertise that their transactions are secure, in fact are far from secure. Paypal doesn't advertise the fact that it can freeze your account anytime it wants, along with all the funds in it and keep it for 6 months or longer. Even the biggest merchants such as Dell sometimes do things like send broken merchandise and refuse to accept it back. Their customer services is outsourced to another country and makes it even harder to deal with them. Small merchants often have better customer service than large merchants.

I hope that this article has been helpful in understand what is online fraud and how to reduce it. If you have any questions, please contact me by clicking here. Please put "Attention S. Bronstein". Happy shopping!.

 

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