Holiday shopping season is upon us; combine that with the current unemployment rate, and online fraud is likely to reach an all-time high this year. This correlation may not immediately make sense, since many people think Internet crime is only perpetrated by organized fraud rings and overseas master criminals, using botnets and committing identity theft.

But while that kind of fraud certainly does exist, there is another type of fraud that can be equally troublesome and, to some extent, even harder to combat: fraud committed by individuals using their own legitimate information. A very common example of this kind of crime is shipping fraud and it takes several different forms. Here are a few examples and tips on how companies can address this problem.

• Denying receipt of goods – In this case, an individual will legitimately place an order and actually receive the goods, but then turn around and deny that they were received. Strangely enough, people will even do this more than once for the same good after another item has been shipped. Online businesses that ship high-value goods often combat this by requiring signatures for receipt of goods. For many businesses, however, this is isn’t a practical solution. Ideally, organizations would like to be able to identify individuals who have a habit of doing this on any site.
• Denying the purchase – In this era of rampant identity theft, many individuals are using it to their advantage, claiming that their credit card was stolen and they were not the ones who made the purchase, therefore they should not have to pay for it. This is a hard type of fraud to detect and defeat, and the only real solution is to require a signature, or have an internal tracking system to identify repeat fraud.
• Returning the wrong good – I have talked with merchants before who have had individuals return old or damaged goods in place of the new ones they ordered and then demand a refund. These cases can be easier to address by simply refusing to refund the purchase, but they are still a problem that businesses would like to be able to address before shipping.

All in all, shipping fraud can be difficult to detect and defeat, but it is worth considering that typically individuals who do this once don’t quit while they’re ahead. Instead they become repeat offenders, targeting multiple online merchants. Tracking the activity of online criminals and sharing that information among a network of online businesses can significantly reduce this type of fraud. Imagine the benefit if businesses could identify the computer before a purchase was completed, and determine if that computer already has a history of shipping fraud.

There’s an old adage that applies here: “Fool me once, shame on you. Fool me twice, shame on me.”  When it comes to online fraud, businesses would do well to track fraudulent activity, learn from past experiences, and work together to minimize fraud this shopping season.

Tags: eCommerce Fraud, fraud prevention, identity theft, Online Fraud, retail fraud, shipping fraud

This entry was posted on Friday, October 23rd, 2009 at 9:09 am and is filed under Holiday Fraud, Online Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.