Online fraud

I don’t think it would be too controversial if I stated that (attempted and successful) incidents of customer / subscription fraud increase as sales channels move from stores to telesales and then again from telesales to online.

Traditional explanations suggest that this is related to the increasing difficulties operators have in validating the identify of an individual requesting service. Certainly this explanation has intuitive appeal. If someone needs to present a photo ID document to a sales person in a store, it is a lot easier to check the picture against the person in front of you and the signature on the ID against that on the contract. This may not be possible for a phone based sale, but it could be difficult for an 18 year old to present themselves as a 65 year old. The anonymity of online prevents all this, and so operators often look to enforce some checks at the point of delivery rather than the point of sale. Of course, this sounds fine but research by credit card companies has shown that photos on cards are not really useful, with merchants accepting payment from cards with pictures of animals instead of people and with the signature panel unsigned. So perhaps the traditional explanation does not tell the whole story.

I recently had a discussion with a colleague who explained that dishonesty is easy when distance can be put between the action and the perpetrator. By example, he said that a golfer with a ball in the rough may not contemplate throwing the ball back onto the fairway, but is more likely to kick it back, and even more likely again to hit it back with a club. The reason being, that the distance from the action increases, in that case from the golfer’s hand, to a shoe and then to the club, as a further extension. The trolley problem provides a further example (http://en.wikipedia.org/wiki/Trolley_problem).  So what about online fraud…online channels place more distance between the application and the  applicant and so makes dishonesty and fraud more palatable to the “customer”. This perspective may supplement the traditional explanation. Payments provide another example of increasing distance correlating to increased fraud. Payments used to be cash, then cheques, then through a card with a signature or PIN, and now its tap and go. All these changes put small but increasing distance between the customer and the transaction and so, my colleague asserts, would leave it more prone to dishonesty and fraud.

So what can operators do? Well I have no silver bullet, but suggest that they consider the distance being created in transactions and dealings with customers, and whether there are ways that this can be reduced, either in reality or by perception.

Mike Willett
Mike Willett
Mike is a Director at Ernst & Young, Australia. He is responsible for enterprise intelligence, helping clients to improve their management and use of data. He can be contacted at: mike.willett@au.ey.com.

Mike was previously the Director for Fraud & Revenue Assurance at Telstra. He started his career at BellSouth (now Vodafone) in New Zealand and then moved to Praesidium Services in the UK. Mike graduated from the University of Auckland in New Zealand with degrees in psychology and marketing.
  • Thanks Mike – good post! Isn’t the number of frauds driven by the ability to automate fraud? The serious fraudsters are running an illegal business. When the interface between the business and customer changes from a face-to-face interaction to one that happens over the internet, there’s a huge uptick in the fraudster’s potential to automate some or all of his activities – hence increasing the number of frauds he can efficiently attempt. In that sense, fraud mirrors trends in the comms industry. As comms providers seek to make interaction with the customer as automated and cost-effective as possible, so they encourage the fraudster to respond in kind.