By Alex Salkever What's the biggest security complaint of Internet users? Credit-card fraud? Identity theft? Nope, it's online auction fraud, according to the Internet Fraud Complaint Center. The IFCC tallied 49,711 complaints recorded by the Federal Trade Commission (FTC) and other government agencies last year. Of the total, 43% resulted from online auction disputes, with an average reported financial loss of $395. The second-biggest complaint -- a distant second -- was nondelivery of merchandise (20.3%).
Auction complaints can go both ways -- against sellers for nondelivery of purchased items or misrepresentation of goods for sale, or against buyers for nonpayment. A few involve high-value sales of stolen goods on auction sites, with the customer finding out weeks or months later that a sweet deal in fact was a real steal.
Fraud complaints, by dint of their sheer volume, dwarf other online security concerns. But the numbers are deceiving: Consider that last year, 50 million people worldwide participated in 170 million auctions on eBay alone, the dominant online auction site.
RETAIL LOSSES. That amounted to an exchange of $9.3 billion worth of goods. If the IFCC report is taken at face value, the total losses due to online auction fraud came out to be a mere $6.57 million. Kevin Purseglove, an eBay spokesperson, says less than 1% of all eBay transactions involve fraud. Compare that $6.57 million to the $20 billion in U.S. retail losses due to theft each year.
This area bears watching closely, however, as the potential for mischief -- especially with big-ticket items -- is great. In 2002, eBay Motors will handle $2.5 billion worth of transactions. Computer sales will bring in $1.4 billion through the online auction channel, the Web site says. Bigger-ticket items could attract professional criminals.
Indeed, that may be happening already. Law-enforcement officials have noted a gradual rise in the number of professional efforts to launder stolen goods on auction sites, mostly on eBay. In turn, eBay has mounted a full-court press to try to weed out such auctions. And, according to spokespeople at the FTC and at the offices of several states' attorneys general, eBay has been a vigilant and responsive partner in fighting fraud. That doesn't mean consumers can't help head off auction fraud on their own, however. Here's a quick primer:
If you're buying, always check out the seller. That means looking at feedback comments posted about them and e-mailing the people they've done business with in the past to find out more about the experience. It might even mean making a phone call and, if a lot of money is involved, requesting phone numbers of references.
Due diligence also means checking out the address of the seller to make sure it exists and, if you really have suspicions, asking for the serial number of any products, so you can check them with the manufacturer, or even the police to ensure that they aren't hot goods.
Use a credit card. Why? Credit-card companies have long had a policy of zero liability for consumers who report fraud incidents in a timely manner, and that now includes online fraud. It's part of the credit-card companies' efforts to reassure customers about e-commerce and promote it.
One way many online traders -- especially buyers and sellers of large-ticket items -- can make sure their transactions are secure is to use an online escrow service, which work likes ones used for real estate purchases.
At Escrow.com, for example, the buyer and seller agree to a price. The buyer then forwards a payment via credit card, check, or money order to Escrow.com, which notifies the seller that it has received and verified the payment. The seller then ships the purchased item to the buyer. The buyer has a specified period to check out the purchase and make sure it's up to snuff. If the purchaser is satisfied, Escrow.com is notified to release the funds. If the purchaser isn't pleased, the product goes back to the seller, and the buyer reclaims the payment.
STIFF FEES. The big downside to Escrow.com is the fees: They start at $15 for money-order transactions and $18 for credit-cards, and vary according to the amount of the transaction. Those fees are pretty steep, considering the majority of eBay purchases amount to $100 or less, according to Purseglove. (The fees can be paid by the seller, buyer, or both.)
Yes, due diligence adds time and inconvenience to a process that users prize for its seamlessness. Smaller transactions may not require such care. But for buying big stuff, such extra effort is a small price to pay to avoid getting fleeced by a slippery seller with a temporary post office box or a van full of hot laptops. Salkever covers computer security issues weekly in his Security Net column, only on BusinessWeek Online