Internet fraud prevention is the act of stopping various types of internet fraud. Due to the many different ways of committing fraud over the Internet, such as stolen credit cards, identity theft, phishing, and chargebacks, users of the Internet, including online merchants, financial institutions and consumers who make online purchases, must make sure to avoid or minimize the risk of falling prey to such scams.
The speed and sophistication of the online fraudulent actors continues to grow. According to a 2017 study conducted by LexisNexis, $1.00 lost to fraud costs organizations (merchants, credit card companies and other institutions) between $2.48 to $2.82 – "that means that fraud costs them more than roughly 2 1⁄2 times the actual loss itself."
Three constituencies have a direct interest in preventing Internet fraud. First, there is the consumer who may be susceptible to giving away personal information in a phishing scam, or have it be acquired by rogue security software or a keylogger. In a 2012 study, McAfee found that 1 in 6 computers do not have any sort of antivirus protection, making them very easy targets for such scams. Business owners and website hosts are also engaged in the ongoing battle to ensure that the users of their services are legitimate. Websites with file hosting must work to verify uploaded files to check for viruses and spyware, while some modern browsers perform virus scans prior to saving any file (there must be a virus scanner previously installed on the system). However, most files are only found to be unclean once a user falls prey to one. Financial institutions, such as credit card companies, who refund online customers and merchants who have been defrauded also have a strong interest in mitigating Internet fraud risk.
History
Internet fraud began appearing in 1994 with the start of e-commerce. The first trend to be seen was the use of “Famous Names” to commit the fraud. Using this method, the person committing the fraud would use stolen credit cards with the popular celebrity of the time’s name. This highly unsophisticated plan was only successful because the internet was new and the possibility of fraud had not been considered. Eventually internet merchants implemented rules to confirm the card user name.
Following the “Famous Names” strategies were more technical attacks in which hackers created card-generator applications that came with real credit card numbers. Attacks such as these were commonly targeted toward the same vendor. Merchants had no way to see cross-merchant activity until the credit card associations reported it. After 1996 fraudulent users went on the internet to test the status of stolen credit cards.
By 1998, the internet was filled with e-commerce sites. Fraudsters began to set up “dummy” merchant sites where they could harvest their own credit cards through their own site. Before the charge-backs rolled in, they would shut the doors of the website and leave the country. Soon a trend started of the mass theft of identities from the internet through information provided online under the Freedom of Information Act. One of the counter-methods merchants developed was the use of consumer accounts. The merchant would set up a consumer account the first time the consumer made a purchase. Following the creation of the new account, the merchant would perform a series of third-party checks to validate the information provided by the consumer.
As auction sites like eBay and uBid gained popularity, new fraud methods arrived specifically targeting this new merchant community. From selling bogus goods to misleading the consumer, the fraudsters continued to take advantage of consumers.
Credit card fraud
Credit card fraud is the unauthorized use of a credit card to make a transaction. This fraud can range from using the credit card to obtain goods without actually paying, or performing transactions that were not authorized by the card holder. Credit card fraud is a serious offense, and punished under the charge of identity theft. The majority of this type of fraud occurs with counterfeit credit cards, or using cards that were lost or stolen. Approximately .01% of all transactions are deemed fraudulent, and approximately 10% of Americans have reported some type of credit card fraud in their lifetimes.