Online Marketplace Fraud

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Overview

An online marketplace makes it easy for buyers and sellers to find each other easily. It connects those looking to provide a product or service (sellers) to the ones who need those products and services (buyers). The first wave of product-focused marketplaces was sparked by eBay’s launch in 1995, followed by a series of innovations in the space. Uber’s success in 2010 has brought about the second wave of disruption in the services marketplace. Since then, online marketplaces have evolved to combine products and services. Whether it’s to buy something, rent a living space or get a ride, these marketplaces have spanned across various market segments from food to crowdfunding.

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Online Marketplace fraud

Online marketplaces represent a fast-growing and popular segment of e-commerce and have quickly become a huge source of digital payments transactions.

Top Marketplaces: Fast Facts

• Alibaba: Annual marketplace orders 12.7M (Q2 2014)

• eBay: 25M sellers (2014)

• Airbnb: Almost 25M total guests (2014)

• Etsy: 1.4M active sellers (Q1 2015)

• Uber: 1M driver partners with 6X yearly growth (2015)

• Amazon: Over 2M third-party sellers (Q1 2015)

Source: “Internet Trends 2015” by Mary Meeker F

Along with an increase in the number of buyers and sellers has come an increase in fraudsters who create spam, develop fake businesses or pursue new ways and methods to steal money or data. Also, since marketplaces provide a way for users to both give and accept payment, they provide a unique set of money laundering challenges.

Marketplace companies often wait too long to take meaningful action on fraudsters. Not only does this contribute directly to lost profit, but also erodes customer trust in the exchange, which leads to much larger losses and, in the worst case, a complete collapse of the business model.

Usually, two-sided marketplaces involve the transfer of money from stranger to stranger, which gives fraudsters an opportunity to divert some of that money. Fraudsters work from all sides and form rings dedicated solely to defrauding marketplace users. Simility looked at the behaviors and schemes employed by fraudsters in online marketplaces and found some common types of online marketplace fraud:

1. Fake Profile Fraud -A fraudulent seller copies the profile of a legitimate seller in order to fool victims into buying something they’ll never receive.

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2. Fake Buyer and Seller Closed Loop Account Fraud - A fraudster creates multiple fake buyer and seller accounts created. The fake buyers pay the fake seller for nonexistent items or services using stolen credit cards.

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The most important step towards fraud mitigation is dedicating resources to it. Marketplaces need to focus on the trust and safety of their sites. Authenticating users and reviewing the quality of listings makes the marketplace safe, and the perception that the marketplace is safe makes it trustworthy. Trusted and safe marketplaces are generally more popular among buyers and sellers.

As the fraud landscape continues to evolve and become more sophisticated, online marketplaces need fraud mitigation strategies in place to make it increasingly costly for fraudsters to extract even small amounts of money from the platform. This can be done through some of the techniques outlined below.

User Information: Fraudsters generally resort to auto-generated or gibberish addresses like [email protected] or emails that don’t relate to the username like [email protected] for a user named Tom Johnson. Consequently, marketplaces need to validate the true identity of users, since anonymity makes fraud easier. Marketplaces can validate the buyer’s identity with their credit card and the seller’s identity with the bank accounts through which they receive proceeds. Also, multi-factor user controls can be deployed for authenticating a particular user.

Often people in online marketplaces submit a photo to better connect with prospective buyers or sellers. So a fraudster can be stopped when they get lazy and reuse the same photo for multiple accounts. The user’s identity can be validated by carefully analyzing profiles on social networks too. Building a legitimate-looking Facebook profile with lots of social connections takes time and is difficult to fake. In a similar vein, there are also a number of companies working to aggregate longitudinal online activity of individual users, making those profiles much more costly to spoof. Again, building that history artificially is difficult and requires time.

Device Information: Once fraudsters find a marketplace with weak anti-fraud measures, they continue to leverage their knowledge of its loopholes. There is a high probability of them returning to a marketplace they have defrauded once to do it again, even if they have been previously identified and banned. Marketplaces continuously fight to prevent blacklisted fraudsters from returning to commit fraud.

Simility’s Device Recon technology is the most sophisticated technique for making repeat fraud prohibitively difficult. It looks for familiar signatures of devices seeking to access the site and blocks them from interacting with it.

By analyzing millions of transactions for marketplaces on four continents over the past year, Simility has uncovered some common attributes of devices used by fraudsters to conduct online fraud, including:

• Cleared browser cookies and referrer histories

• Use of Windows machines

• Not using “private mode” or “incognito mode” when visiting a website or app

These familiar patterns between the behavior of banned users vs good users can make it harder for a scammer to get back into the marketplaces.

3x 90% 98% Fraudsters are 3X less likely to Fraudsters clear their cookies Fraudsters use Windows browse in Private Mode 90% of the time 98% of the time

Behavioral Information: Fraudulent behavior can be recognized by analyzing and contrasting it with known good user behavior. For instance, a seller account that changes its payment credentials and then lists an unusually high number of new listings has a much higher probability of being fraudulent than the typical seller account. Another observable pattern is that fraudsters are more likely to fill out fields using all lower case letters since they can type faster that way.

Fraudulent Users and Transactions Information: A long-term marketplace user who behaves in a consistent manner and has a track record of authentic trading on the marketplace is a low risk for fraud. However, new users, those who often change bank accounts and emails or those who display high dollar transactions should have a poor reputation on the marketplace. Assigning a score based on the likelihood of fraud can help focus efforts on the users and transactions that are most likely to be fraudulent.

Simility’s Dynamic Fraud Detection Tool is an automated fraud prevention product that puts the anti-fraud strategies listed above to use and helps marketplaces fight back against fraud. Manual rules from top experts and bespoke machine learning make it highly customizable and scalable. By improving automation and accuracy, it can help marketplaces identify which transactions, profiles and accounts are most likely to be fraudulent. Simility has worked with leading marketplaces across various verticals and helped boost their transformative growth while considerably reducing the operational barriers.

References: http://www.thepaypers.com/expert-opinion/what-machine-learning-can-teach-us-about-marketplace- fraud/764039 http://www.forbes.com/sites/valleyvoices/2015/10/21/how-to-guard-your-marketplace-against- fraudsters/4/#2ed56399fb0e http://versionone.vc/wp-content/uploads/2015/11/Marketplace-Handbook-11-08-2015.pdf

About Us: Simility transforms fraud prevention with a versatile platform CONTACT US FOR A DEMO that combines the best of human analysis and machine learning. To Simility.com/demo learn more, please visit Simility.com