Online Auctions – Detecting Credit Card Phantom Transactions
Online auctions open up opportunities for several types of frauds. A particular type, which facilitates illegal loans, is on the rise in several nations. Researchers have analyzed these cases to find patterns, which could help identify them, including other types of auction frauds.
As the internet reach broadens, more and more people have started to use online auctioning (EBay). Along with this growth, fraud also keeps growing. 2007 alone saw about $14.37M in auction fraud. Misrepresentation of items, fake bids by the seller to drive up the price, adding hidden charges (shipping & handling, insurance), non-delivery of items and offering black market goods are just some of the well known online auction frauds.
A particular type of fraud is very prevalent in Korea and is also found in most other markets – Online Credit Card Phantom Transactions (OCCPT). In this type of fraud, the seller and buyer collude to create a fake transaction, there by resulting in money (loan) got from the credit card company at a relatively very low interest rate, as compared to other options. This fraud is done in situations where, a person is not able to secure any forms of legal loans, interest rate of available loans are very high or cash advance limit on the credit card is very low compared to the purchase limit. Finally, the buyer (the owner of the credit card) could pay or not pay the credit card company.
This type of fraud has a very huge history in Korea’s online auctioning industry. At first these transactions were limited, however the online auction companies got greedy due to the increased profits got by these transaction and did not care to stop them, resulting in losses for the credit card companies. At a point credit card companies refused to work with online auctioning companies, unless the cost of these transactions was handled by the auction companies. At a point 25% of EBay Korea’s transactions were such transactions, resulting in stock price drops. Since then, EBay has implemented measures to control these, but OCCPT are still well prevalent. It is not necessary that OCCPT are found only in Korea, given the current credit situation of various world economies, there are lots of people who can’t get loans but have purchase capabilities in their credit cards.
Researchers in Korea, collected data for three months about all credit card transactions for more than $1000, bought using the “but-it-now” price for laptops (usual characteristics of OCCPT). Upon various analyses on the data, they came up with recommendations on how to detect such transactions. These recommendations not only help find OCCPT, but help regular users of EBay find odd auctions, which could be part of some type of fraud. Knowing these recommendations would also help genuine buyers from avoiding transactions that would result in having to deal with fraudulent (OCCPT) sellers.
Avoid auctions with higher starting bid – EBay and most other auction websites, charge a bid registration fee, which is the minimum fee to get the bid listed, which is based on the starting price of the bid. This is why even used cars worth several thousands of dollars are sometimes starting at a dollar or so. However, this approach invites lots of bids from genuine bidders, which is not what OCCPT sellers want, thus they start their auctions with higher bids.
Avoid auctions with shorter auction length – Longer the auction, higher the chances of getting a higher bid. However fraudulent sellers would prefer shorter auction lengths and/or adding “Buy it now”. A combo of high starting bid with shorter auction length is just a perfect combo one should look out for and avoid, as no reasonable and genuine seller would do both of these, which heavily minimizes the chances of a successful high margin bid.
Less number of bids – Providing very little description is a usual technique in most auction fraud. Most buyers who sense this would not make bids on such auctions. OCCPT seller who does not wants other bidders to bid, would usually provide very little description.
Larger bid increment – Smaller bid increments is the usually preferred method for genuine buyers and research shows that smaller increments bring more profit to sellers. However, OCCPT sellers set their bid increments higher, in order to deter too many people from bidding.
Avoid sellers with low ratings – This is an obvious one, but is also tough to resist when seeing very alluring bids. Low ratings were strongly associated with fraudulent transactions as a part of the analysis conducted by the researchers.
Though the above mentioned recommendations seem obvious, the statistical correlations between the above mentioned factors and fraudulent transactions are so significant that every user using online auction sites should be observant of these recommendations.
Image Credit: Flickr
Journal Reference: 10.1016/j.eswa.2009.09.034
