How Serious is Online Fraud?

by Pamela Heywood

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Published on this site: January 2004 - See more articles from this month

Every day you hear about some purported online scam which is supposedly ripping thousands off innocent buyers. There are whole sites set up to inform and report on these matters, which is great, but it tends to paint a one-sided picture.

Without wishing to sound unsympathetic, in a very large majority of cases, it is because buyers fail to see warning signs (like lack of contact information on the sites they purchased from), didn't check them out to see if they were members of agencies that could verify their integrity, or simply because they wanted to believe the impossible, i.e. that they'd get rich overnight for a $29.95 "investment".

Identity theft and major fraud get plenty of press, but what seldom makes the headlines is the amount of petty fraud perpetrated by the general public upon small online merchants. Particularly in respect to instantly downloadable digital goods: i.e. software, eBooks, etc.

Fraud committed by your visitors is a far more prevalent problem than you might imagine and, I believe the simple reason for this is that it's far too easy to carry out.

Oh, forgive me if I don't explain EXACTLY how! :-)

On the one hand, merchants & website owners don't concern themselves with the details and pretty much put their heads in the sand. Maybe they even imagine that security products; scripts, information, etc., are just another way of trying to squeeze a buck out of them, by using scare tactics to pretend to solve a problem they don't know they've got.

Well, too right, they don't know they've got the problem if they aren't tracking or doing something to protect their sites and downloads ... that would show up where thefts are being made. If they were, they'd know that this is a very real problem that is growing at an alarming rate.

Someone who wouldn't dare steal from a traditional store, but who understands the very basics of HTML can, and will, take the goodies and run. They wouldn't have the guts to do so face to face, but they imagine they can get away with it, with the anonymity they think they have online.

It isn't quite that simple to be invisible. If you capture the IP address and the exact time of any fraudulent access, the amateur perp can often be caught. A quick note to their ISP -- who will know which of their customers were attached to that IP address at that time -- will ferret them out.

Just to see for myself, I recently carried out an experiment using a low-ticket item. Normal payment links were in place and I set up some rudimentary tracking that would let me see where the payment process was bypassed, but I deliberately didn't implement any special security to prevent it.

I sent out my advertising and certainly didn't have to wait long for *takers* -- in all senses of the word.

Almost the moment my solo ad hit my subscribers' inboxes, emails for payment receipt transactions and notifications that the product had been downloaded began to arrive.

And the numbers didn't match!

It was a small sample, but one in five, 20% had downloaded without paying. No, I can't say if this percentage would translate to a larger sample, because, quite frankly, I'd rather not find out thanks, but clearly it does go on.

Whatever the percentage, it's serious enough and taking some measures to prevent fraud will increase your profit by at least that amount. Every percentage point helps these days.

If the ticket price and volume are sufficient, this could be a very significant slice of your profit that's currently leaking right out of your hands. And I know whose hands I'd rather have it in, if it were mine!

Pamela Heywood. Start your own online business the right way with our free home business newsletter and original fast-track online business course ... you can't get this anywhere else! Send a blank email to; mailto:[email protected] Or visit: www.pamela-heywood.com