Study: Auction Fraud Still Top Cybercrime

Internet auction fraud accounts for 87 percent of all incidents of onlinecrime, according to a new study released Tuesday by eMarketer.

As part of its “ePrivacy & Security Report,” eMarketer also found that morethan 34 percent of Internet users have been targeted by a Web-based privacyor security breach. Moreover, the study estimates that the averagefraudulent transaction costs roughly US$600, which outpaces most researchestimates of average online retail spending.

eMarketer said that half of all users falling victim to onlinefraud are in either the Generation X or the baby boomer bracket,two of the most tech-savvy Net populations.

“For most Internet users, the protection of personal information is a realand valid concern,” said eMarketer analyst Rob Janes. “Offerings of freeservices and promises of wealth lure participants into binding contracts orunbelievably great deals enticing consumers to buy products that neverarrive or don’t meet the quality promised.”

Credit Cards Safe?

eMarketer also found that the rate of credit card fraud as a percentage ofall credit card transactions is extremely low. Citing data from Visa andMastercard, the report said 22 million fraudulent creditcard transactions occurred either online or offline in 1999, out of an estimated total of 25 billion transactions.

Despite these figures, eMarketer said that the majority of Internet userswho do not make purchases online are afraid of hidden costs, leery of fraudand question companies’ ethics. The report said that consumer fears resultedin roughly $2.8 billion in lost sales in 1999 and could top $18 billion in2002.

Although they spur only a fraction of the complaints for auction fraud, theother categories of online crimes cited by eMarketer were generalmerchandise sales, Internet access services, computer equipment service, andwork-at-home scams.

Net Auctions Up

Recent studies have forecasted that consumer-to-consumer onlineauction sales will spike to over $15 billion from the $3 billion racked upin 1999. eMarketer said that these figures naturally open the door for aconcurrent increase in online criminal activities.

“Given that 16 million unique users may visit eBay in a given month, it’s nosurprise that auctions consistently rank as the most fraud-prone onlineactivity,” said Janes.

In recent weeks, eBay — which was the 13th most visited Web site accordingto the latest Media Metrix statistics — has taken steps to crack down ondeal scams. At the end of December, the online auction giant said it wouldbegin enforcing a prohibition on offline deals between members, saying that user complaints sparked its decision to take action since buyers who conductbusiness outside of eBay are not protected by the company’s insuranceprogram or feedback system.

Under the new policy, sellers who use their eBay connections to conductbusiness offline will first be warned and then suspended from the site.Prohibited conduct includes offering to sell a listed item outside of eBayto avoid paying a listing fee, as well as offering to sell users merchandisesimilar to what they are bidding on at eBay.

Comparing Studies

Several recent studies dovetail with the eMarketer report. A study issued inNovember by the National Consumers League (NCL) found that Internet auctionsgenerate the largest number of online fraud complaints.

Similarly, the U.S. Federal Trade Commission cited auction fraud as the No. 1 online scam, with the number of reported cases mushrooming from 100 to1997 to a whopping 10,000 in 1999.

On a positive note, the NCL said that incidents of fraud in online auctionsmay be decreasing. According to NCL, 79 percent of complaints filed in 2000 were related to auction fraud, as compared to 87 percent in 1999.

3 Comments

  • The above statements are hard to analyse. In one sentence we are told the NUMBER of complaints increased from 100 to 10,000 from ’97 to ’99 and in the next we are told the PERCENTAGE of complaints about auction fraud went down in 2000 from 1999. The percentage of an exploding number is still an explosion.

    As a victim of auction fraud, one can see the same phenomenon that obtains in other crime reporting statistics. The higher the incidence of actual crime, the less of it relatively is reported.

    A woman may well report the first incidence of rape and a taxi driver may well report the first armed robbery. But after going through a lengthy and futile reporting rigmarole, no woman will bother reporting the second rape and no taxi driver will bother reporting the second, third and fourth stick-up.

    The only crime that gets reported in high crime areas is insured crime, and that is because the insurance company requires a police report number in order to honor a claim. If there is no insurance, there is no crime report.

    Crime statistics are based on crime reported, not the actual number of crimes. There is a great deal more crime of all kinds than is reflected in crime report figures. And every policeman knows it.

    • Terry, I understand what you’re saying but disagree a little bit with the examples you provide. I think that if a woman is raped even as much as 3 times, she WILL report it. Yes, the reporting process just may be worse than what she suffered, but I think that women would want to obtain some type of justice, so they would report it.

      I think one of the main reasons why Internet auction fraud is not discussed much, studied much, or even given the same “news time” as other cybercrime such as denial of service attacks, etc. is because they target individuals, not major corporations. Another reason is because the victim was not physically harmed so they are not really a “victim.” But this is consistent I think with other white-collar crimes (i.e. denial of service), if it does not affect a big-name corporation or millions of people at once, it gets no air time.

      It comes down to how many people are affected and what is the damage ($$$). There are a lot of people affected annually, but each is an isolated incident only accounting for approx. $600 in loss each time. What law enforcement agency or news organization is going to jump on that? Not many. Sad but true.

  • I won an 1995 Yamaha scooter from internet auction. scooter receieved is year 1987 instead. The reatiled value for 1995 is $995, and $570 for 1987 for a fully working one. Scooter receieved is

    non-working, and many problems were not mentioned in the auction description. The seller offered refund, but the refund is under impossible conditions. The scooter has to be returned back to him within 3 days, and the buyer has to pay the shipping cost (over $100).

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