According to a study by the British House of Commons in 2017, online fraud is the most prevalent crime in England and Wales, impacting victims not only financially but also causing untold distress to those affected. [1]

In the United Kingdom alone the cost of the crime is estimated at £10 billion, with around 2 million online frauds reported last year. However, the true extent of the problem remains unknown. Depending on the country only around 5 - 20% of fraud is reported to the local police.

Online Scams: A Global Plague

The Internet Crime Complaint Center (IC3) of the FBI has been collecting data related to internet facilitated crime since 2000. As the graph below shows, online fraud is quickly growing both in number of complaints as well as value lost. [2]

Figure 1: Internet Scam Complaints & Millions lost ($), FBI - IC3 Annual report 2019

Online scams are a booming business. In the USA the number of complaints grew with 17% in 2018 compared to 2017, the actual money lost grew with a staggering 31%. Likewise, in Australia for 2019, if the current trend continues, a growth of 17% in the number of complaints is expected and a 91% increase in money lost. [3]

The kind of scams differs per country. While in the USA the biggest category is online shopping scams with goods not being paid or delivered (14%), in China 61% of the internet users have been scammed in a prize and lottery winning with online shopping scams taking 4th place with 35.7%.[4]

In the Netherlands, more consumers get scammed online (4%) than bikes being stolen (3%). According to the Dutch Consumer Protection Association, 1 in 5 Dutch online stores is now a fake. These fake online stores mainly are Chinese merchants selling counterfeit products and professional criminals hoping to gather access to credit card and bank details.[5]

Why Online Fraud is Booming

The obvious answer to why online fraud is growing so rapidly is that the number of Internet users is steadily increasing, to 5.5 billion in 2019. Likewise, the global ecommerce market is hitting $ 2.1 trillion and is growing with roughly 14% annually (see our free Global Ecommerce Report 2018). With all the benefits, the Internet and e-commerce bring, so grows the shadow side.[6]

Figure 2: The Global ecommerce Market, Ecommerce Foundation, 2018

However, there are three other key reasons why online scams are growing so quickly. Online fraud simply stated is safe, secure, easy and cheap to commit.

Online Fraud is Safe

To start with; online fraud is relatively safe to commit. One of the biggest issues with online scams is that victims rarely act or report a scam.

There are several reasons for this. The first is that the scammed amount is often low. In a study amongst Spanish consumers, 68.3% reported having lost less than 100 euro’s with only 1.9% reporting losing more than 1.000.[7] For many consumers, it is simply not worth the effort. They take their loss if an iPhone charger of $ 4,99 from China proves to be a fake (surprise, surprise) or is not delivered.

“You would be amazed at how many doctors, lawyers, engineers and college professors I ripped off. "
John – Career Scammer

Likewise, victims often feel stupid or ashamed, especially for large investments into cryptocurrency (mainly elderly) or sensitive topics like romantic fraud (surprisingly more women than men). Several studies have proven scams hit any gender, age group or education level, just the kind of online scam and level of sophistication differs.

Online Fraud is Secure

To make things worse, many police forces, do not consider online scams a priority. Did the victim not pay the scammer voluntarily? Is it really a crime? Is the victim not just dumb? The few consumers who report a scam often feel humiliated when reporting the crime.

Also, the number of online frauds is so high it would mess up the crime statistics. It nearly doubled the number of crimes in the UK when they were included in 2016. Likewise, while overall crime in Singapore fell with 8.6% in 2018, online scams increased with 20.6%, increasing overall crime statistics with 1.4%.[8] Many police forces prefer not to include online scams in their reports as they feel the statistics do not show all the good work that has been done.

Finally, most police forces are still operating regionally and not even nationally, let alone across a continent or globally. Online fraud is a truly global business. Many scammers focus on other parts of the world to commit their crimes, knowing that the police forces have difficulties exchanging information and making it difficult for victims to report the crime at the right place. Some countries are even identified with certain types of scams. Nigerian scams for example involve someone overseas offering money on the condition you help to transfer the money (illegally) out of their country.

Online Fraud is Easy & Cheap

Everybody can scam. Even for starting scammers, it has become very easy to set-up an online scam:

• Buy a url: you can buy a domain name for less than $ 1,50 per year without any need to show an ID. Even for serious domain names like “.com” and “.org” few validations to none are needed.
• Set-up shop: It’s easy to set-up an online store using open source software or using online ecommerce platforms like Shopify (800.000 online stores) and BigCommerce (600.000).
• Get traffic: Sending emails has nearly become free. Most scammers simply use Gmail. For $ 699 you can buy 85 million American email addresses. [9]

Professional scammers take a more industrial approach and buy URLs by the hundreds. They host their own servers, simply copying the code from one online store to the next. They use fake credit cards to send 500.000 emails per hour for less than $ 100 or promote 80% discount on Adidas shoes for a few cents per click on Google, Facebook and other social media.

Scammers have gone Pro

Many still think it is relatively easy to identify an online scam or an online store fake product selling. However, the general rule that “if it is too good to be true, it probably is” no longer applies. Scammers have gone pro and simple rules like the one stated no longer apply. Professional scammers only give small discounts for premium brands, making them just a little cheaper than anywhere else.

Other typical tricks to identify online fraud are likewise no longer working:

• What are the reviews: 63% of the consumers check reviews before they buy. However, 61% of the reviews on sites like Amazon are fake.[10]
• Is communication secure: 43% of consumers checks for an SSL certificate. Unfortunately, SSL certificates can now be gotten for free. 50% of all phishing sites have an SSL certificate. [11]
• Check the language: 39% of the consumers analyze the grammar and spelling of the website for sloppy Google Translate work. DeepL Translator is considered 3x more efficient as Google Translate and is slowly replacing professional translators. [12]

Without advance technical knowledge and data, it has become nearly impossible to identify an online scam. Professional scammers are even buying online stores who are offered for sale by legit retailers. They use the reputation and old reviews to instill trust, only drop the prices of the assortment with 20 – 30% (enough to make it interesting but not enough to instill suspicion) and set-up professional social media and advertising campaigns to get traffic fast. In the few days, online scammers take the money, never deliver and when the scam becomes public, simply run.

Fighting Online Scams

Police forces everywhere are trying (with different levels of enthusiasm and success) to fight online scams and fake product selling online stores. However, like with the “War on Drugs” the focus seems to be on catching the local street dealers and not the crime lords behind the curtains. There are two actions we should take; remove the infrastructure for online scammers and build a global blacklist.

Remove the Scam Infrastructure

In the case of online fraud, it is simply too easy and cheap to set-up an online scam. We must remove the infrastructure allowing scammers to set-up shop. Now you can buy a domain name, rent webserver space, build an advanced online store and advertise online on Google, Facebook and other social media with only a (stolen) credit card number and (free) email address. No real identification is needed.

Those companies who provide Internet infrastructure and do due diligence, show remarkable results. The registry of the Danish .dk domain, for example, started asking for a company VAT number or tax ID in 2017. As a result, the number of .dk domains used for online scams fell from 6.73% to 1.03% in one year.[13]

Of course, private persons and companies should not be hindered in doing legit businesses, and online authentication is far from perfect. However, a simple due diligence process may make live a lot harder for online scammers.

Build scam blacklists

Of course, due diligence is not enough. Even if legit providers of internet infrastructure could check each of their clients, it will never be foolproof. Likewise, there will always be providers who will not invest in a proper due diligence process, hiding behind excuses as high cost and lower customer experiences.

In addition, blacklist for online scammy websites are needed to help hosting providers. Online blacklists are nothing new (the first one was set-up in 1997). There already exist blacklists for email spammers like DNSBL and malware and phishing sites like Google Safebrowsing.

Scamadviser.com is one of these blacklists for online fraud and fake product selling websites. Scamadviser developed an artificial intelligence algorithm, utilizing 40 independent data sources to identify scammy websites. From the IP address of the webserver, the availability of contact details on the website, the age of the URL, ratings on review sites and more. In addition, it receives weekly lists of fake products selling online stores from over 300 brand and brand protection agencies. The Scamadviser blacklist contains 65 million websites and is growing by more than 1 million sites a month.  

While 2.5 million consumers check Scamadviser.com every month, Scamadviser also offers social media and other advertising platforms direct access to its database to check URLs included in adds. Likewise hosting providers and registries can run frequent checks to see if their infrastructure is being misused.

If providers of internet infrastructure to do more proper due diligence and use blacklists to remove the ones which are missed, we make the world a much safer place to surf and shop online.

Sources

[1] https://www.statista.com/statistics/765291/users-what-they-suffered-fraud-economic-by-internet-in-spain-by-quantity/

[2] https://www.channelnewsasia.com/news/singapore/increase-reported-crimes-due-to-more-scam-cases-overall-crime-11261972?cid=h3_referral_inarticlelinks_24082018_cna

[3] People who email me to ask where will not receive a reply for obvious reasons.

[4] https://marketingland.com/study-finds-61-percent-of-electronics-reviews-on-amazon-are-fake-254055

[5] http://docs.apwg.org/reports/apwg_trends_report_q4_2018.pdf

[6] https://mastercaweb.u-strasbg.fr/deepl-versus-google-translate/?lang=en

[7] euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/Research_on_Online_Business_Models_Infringing_IP_Rights.pdf   

[8] www.ecommercefoundation.org/reports

[9] https://www.scamwatch.gov.au/

[10] https://www.statista.com/statistics/1003979/china-main-online-frauds-by-type/

[11] https://www.consumentenbond.nl/online-kopen/nep-webwinkels

[12] https://www.ic3.gov/media/annualreport/2018_IC3Report.pdf

[13] https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/399/399.pdf