Online auctions continue to be a popular e-commerce destination on the World Wide Web. During January through March 2006, eBay alone hosted 575.4 million items for sale and had over 192.9 million confirmed registered users.
The Internet Fraud Watch, a project of the National Consumer’s League, reports that in 2005 "Auctions" were the leading type of Internet fraud, at 42% of all Internet fraud complaints received.
As a percentage of overall online auction transaction, auction fraud represents a relatively infrequent event. One auction site reports that less than one percent of the site’s transactions that ever result in a complaint. Given the growth in the popularity of online auctions, however, the relative stability of online auction fraud as a percentage of overall transactions may mask the absolute growth in the number of actual complaints. Despite this relatively low frequency, online auction fraud is a serious concern for auction site providers, third party payment system providers and auction participants and third party payment system providers.
National media attention is routinely directed to high-profile cases of Internet auction fraud on eBay or other auction sites. Auction site operators express concern that the buying community perceives online auctions transactions as unsafe. Site operators also have a strong desire to protect their reputation on the Internet as trusted online retailers.
One area of reported growth in reported online auction fraud is international fraud. Site operators indicate an increase growth in fraud perpetrated from outside of the United States, especially Romania and the Far East. International fraud poses a particular challenge for online auction site operators who may not have a site presence in the country where the fraud originates.
Payment Systems: Moving Towards Cashless Transactions
The biggest change in the past year reported by online auction sites is in the growth in the availability of "safe" payment options: credit cards and proprietary or third party payment systems.
- Over 40% of all Yahoo! Auction purchases can be paid for with Yahoo! PayDirect, a proprietary payment system offered by Yahoo! to both buyers and sellers on their auction site;
- eBay estimates that over two-thirds of eBay’s auction sellers will accept either credit card payment, PayPal (a third party payment system) or eBay Payments (formerly Billpoint, eBay’s proprietary payment system);
Proprietary or third party payment systems such as PayPal, eBay Payments, Amazon Payments or Yahoo! PayDirect offer buyers an increased level of protection from a fraudulent seller, but do not guarantee that the buyer will not lose out. Proprietary payment systems may increase a buyer’s protection by providing another avenue for complaints against a fraudulent seller and potentially enhanced insurance (for example with Amazon Payments). Proprietary payment systems may also "screen out" fraudulent sellers because of the reduced anonymity of the transaction. However, the degree of protection for a defrauded buyer may be limited depending on the particular features of the payment system.
Other Fraud Prevention Tools
As online auctions have grown in popularity, independently operated websites devoted to reporting fraudulent trading behavior have grown as well. Some sites are devoted to a specific type of merchandise, for instance Beanie Babies, while others are devoted to online auction fraud in general.
- www.AuctionBlackList.com posts complaints from auction buyers about fraudulent sellers. The site allows users to search the database of postings by name, user name and business name. It also allows users to view the most recent postings. The site operator disclaims any responsibility for the content on the site, and also provides a mechanism for an individual to request removal of his or her name from the site. The site is relatively new, started in late 2001 by a college student who owns and operates the site.
- Traderlist maintains a database of both "good" and "bad" collectibles traders. Users can post information about fraudulent sellers and provide a narrative description of their experiences. Users can view most recent additions to the Bad Trader List, view Bad Traders by state and county and by name, email address and user ID. The site contains a disclaimer that the information contained on the Traderlist Caution List is not investigated unless a request is made for an investigation.
Virtual Feedback helps Internet buyers and sellers to create one central feedback location for information about their transactions. Virtual Feedback offers a feedback system that is not site dependent. An online auction buyer can use Virtual Feedback to rate any seller. Auction sellers can then advertise their positive Virtual Feedback on whatever auction site they are using. Therefore, good trades on eBay theoretically become relevant on Amazon.com Auctions. In addition, Virtual Feedback purports to be a more effective feedback mechanism because it allows a user to rate a transaction on more aspects of the transaction, including item description, packaging, correspondence and shipping.
Both "bad" trader lists and non-site specific feedback attempt to expand the reach of online reputation to the broader Web community. However, both are limited by the relative ease by which bad actors can change their Internet identity. In addition, the success of these sites depends on the vigilance of those who were defrauded to accurately post their experiences. Potential buyers must then take an extra step before bidding to examine the online reputation of a potential online trading partner. This must be in addition to examining the site-specific feedback for a given seller and the trading history for that seller. This level of vigilance may simply be too much to ask of the online auction buyer.
[Back to Top]
Online Auction Tips