What is Reseller Fraud?

Online criminals have gone through a dramatic improvement in their process for attacking online merchants, skipping the need for freight forwarding or reshipping schemes. Cheap online marketplaces are making it easy for fraudsters to hit online merchants and direct marketers hard with a new approach to reseller fraud and affiliate fraud.

 

Online merchants offering affiliate programs, reseller programs and multi-payment trials have seen dramatic increases in their fraud rates resulting in higher charge backs, penalties and losses related to shipped-goods. Reseller fraud schemes are as simple as ever to set up, hit hard and move on,  often times unnoticed for weeks leaving a merchant, marketer and analyst pondering where the money and merchandise has gone.

 

 

 

Reseller schemes are not complex and no longer needs freight forwarding delivery, reshipping middlemen or work at home schemes:

1)  Fraudster sets up a simple online storefront or marketplace (think eBay or Craigslist).

 

2) The innocent shopper does a search and finds a new product discounted and priced below retail.

 

3)  The innocent buyer makes the purchase with their real legitimate credit or debit account.

 

4) Innocent buyer’s funds go into the fraudsters (merchant) account. This can easily be a PayPal account. The innocent buyer views everything as a great deal and business as usual.

 

5) The fraudster usually will access the merchant website through a series of compromised computers hiding their true identity, IP and geolocation. These infected computers can be in any household, café, library or other type ‘lab’.

 

6) The fraudster then actually goes to the REAL merchant’s website making a purchase following one or several of the following scenarios, while entering the REAL buyer’s name and ‘ship-to’ address:

a.  Uses a pre-paid gift card for a trial version and agrees to multi-payment, but has no intent to follow up on payments and no future available funds

b. Uses a stolen credit card that has yet to be reported as compromised

c. In some cases, the fraudster is registered as an affiliate and collects commissions for the fraudulent sales

 

7) The REAL merchant believes the transaction is legitimate shipping the product to the innocent buyer. The buyer receives the product, is happy and has no idea what occurred.

 

8) Merchant pays affiliate commission (if applicable)

 

9) Merchant later suffers the following losses

a. Chargeback + associated fees

b. Uncollectable accounts receivable for initial payment and follow-up payments

c. Lost affiliate commissions

d. Losses related to shipped product

 

The above scenario is one of many ways the sophisticated and well connected network of criminals defraud online merchants through gift card, affiliate fraud and reseller schemes. If you add up the numbers, you quickly see it doesn’t require many transactions when stealing high-dollar merchandise to make a good living stealing. Mean while, the merchant quickly loses margin and shipped products, while fees and uncollectable debt rises.

 

Jeremy