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PayPal Researchers Say Buyer Fraud Is Common

While eBay and online sellers are only too familiar with the problem of bad buyers, a new academic paper seeks to shed light on what it calls a common but little known type of fraud, which it dubbed “liar buyer fraud.”

The paper – Liar Buyer Fraud and How to Curb It – looks at what liar buyer fraud is (it’s almost exclusively the result of “temporarily poor judgment of otherwise honest people,” it states), and describes experiments it undertook to test proposed techniques to reduce this type of fraud.

The three authors of the study are academics who worked for PayPal, one as a Principal Scientist in Consumer Security for two-and-a-half years (Markus Jakobsson), the other two as interns in the summer of 2013 (Hossein Siadati and Mayank Dhiman).

The authors of the study seem surprisingly sympathetic to these lying buyers:

In a typical liar buyer instance, a consumer orders and receives some merchandise, and then reports it not delivered in order to get a refund. Commonly, the liar buyers are not repeat fraudsters, and many of them are believed to act in response to losing a similar amount to another instance of fraud – then contesting the charges but not being ruled in favor of.

The researchers reported that while the exact amount of losses from bad buyers is unknown, they cite PayPal figures estimating that 25 percent of direct fraud losses come from “liar buyer fraud.”

In order to come up with hypotheses, the researchers first interviewed five self-confessed liar buyers – “The goal was to identify the reasons why these otherwise honest people would engage in fraud, and what emotions prompted their actions.”

The researchers also interviewed two customer service representatives at a “large service provider.” (It appears likely the researchers studied eBay transactions, and the paper describes a fictitious marketplace called “xBay.”)

“Both these interviewees said that they commonly would be fairly certain when a dispute is a liar buyer case, but they had no practical tools to address such cases.”

The researchers ran experiments in which subjects were exposed to a role-playing storyline in which the subject first experiences being defrauded, then gets an opportunity to get even by acting as a liar buyer. “The role playing game starts by the user ordering a TV. However, when it arrives, it turns out to be defect – and it seems like the seller must have known that it was broken when he shipped it. We make the subject perform tasks to make him identify with the victim, and tasks to make him angry.”

So what did the PayPal researchers find from their experiments?

“We have found that showing users in the process of filing a dispute that (1) their computer is recognized, and (2) that their location is known dramatically reduces the willingness to file false claims. We believe the reason for the reduction is that the would-be liars can visualize their lack of anonymity at a time when they are deciding whether to perform a fraudulent action.”

They also said it was quite conceivable that increased awareness of the liar buyer problem among the public might cause losses to increase; that while liar buyer fraud has the semblance of a victimless crime, quite commonly it is a peer consumer who loses money; and that losses from liar buyer fraud is often the cause of liar buyer fraud (a seemingly vicious circle).

That means a site like eBay has reasons to keep silent about the problem. And while the researchers don’t mention it, it seems worth noting here that even though buyer fraud is such a common problem, eBay doesn’t allow sellers to warn their colleagues about buyers who commit fraud – sellers are only allowed to leave positive feedback for buyers, whether or not those buyers are liars.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.