Economic Impact of E-Commerce Payment Fraud
Abstract
New technological tools and way of doing business B2C e-commerce have a considerable impact on the economy. There are diverse types of e-commerce applications; however, for this paper m-commerce, applications have been considered, and influence of the m-commerce payment frauds has been determined on the economy of the United States. It has been realized that the impact of m-commerce payment frauds is not large on the United States economy because m-commerce represents the very small amount of the economy, which account approximately 0.53 percent of the overall economy. The aim of selecting the m-commerce is that it is the most common type of e-commerce applications, and the ratio of m-commerce fraud is highest as compared to any other type of e-commerce frauds. It has been determined that controlling fraudulently activities is 7 percent more difficult than in person sales. Hence, if the m-commerce sales increase the fraud activities and therefore the ratio of loss will increase as well.
Introduction
According to the United States Census Bureau news, the overall e-commerce sales of the United States were $ 341.7 billion in 2015 that was an increase of 14.6 percent as compared to 2014. The region e-commerce retail sales have been on the increase from 2006 (DeNale & Weidenhamer, 2016). The total retail sales represent the two third of the country’s GDP, and the e-commerce sales made 7.3 percent of the total retail sales (DeNale & Weidenhamer, 2016; Focus Economy, 2016). This means that the increase in e-commerce payment frauds will make a significant impact on the economy if the United States.
For the assessment of the impact that e-commerce payment frauds can make ion the economy of the United States, the paper has been separated into three sections and the focus has been given to the m-commerce B2C payments frauds. The first section defines the concept of e-commerce. The second section reflects on the Business to consumers (B2C) type of e-commerce. However, the third section has focus on the m-commerce types of payment frauds with the impact of these frauds on the economy of the United States.
Ecommerce defined
E-commerce is a combination of two words that are electronic and commerce. According to the definition of Webster’s dictionary, e-commerce is to conduct business transaction and communication over networks and through the utilization of computer technology. E-commerce also known as the buying and selling activity that take place through the internet. However, e-commerce is not limited to the buying and selling activities it includes all the activities that are linked to purchase and sale such as communication with suppliers and customers, exchange of business data, and financial transactions. More specifically, e-commerce refers to conduct business by using computer networks. By this explanation, e-commerce involves intercompany and intracompany functions; for example, negotiation, marketing, manufacturing, selling, finance, and marketing (Zhou, 2004).
Business to consumers (B2C) e-commerce
There are different types of e-commerce such as business-to-business (B2B) e-commerce, business to customer (B2C), business to government (B2G), and customer-to-customer (C2C). The volume of e-commerce is constantly growing with technological advancement and widely has been in the global market; it includes direct sales between consumers and businesses. This means, the most common e-commerce type that is used is a business to consumer (B2C). Business to consumer (B2C) has turned out to be one of the most common types of cross border shopping. The B2C expansion has led to customers such as in 2012 over 78 percent people in North America, 42 percent in Latin America, around 27 percent in Asia, and 63 percent in Europe were using the internet for shopping (Yuthayotin, 2014). However, currently, it has been observed that a large number of people perceived that the online transactions are risky, this perspective cause to restrict the e-commerce expansion. These people remain conservative in online shopping, more specifically in transactional sales (Yuthayotin, 2014).
M-commerce and impact of frauds on economy
Merchants have taken significant initiatives to stop more frauds, but still they lost huge ground. In 2012, 170 cases of frauds were observed from which 90 percent were prevented. In 2015, the m-commerce fraud ratio increased to 333 of which 156 were completed, and 177 were prevented. The m-commerce merchants are spending $133k on the fraud prevention solutions, which is the higher amount as compared to large e-commerce merchants and international merchants of $115k and $102k respectively. It has been determined that to prevent fraud is seven percent more difficult in remote channels as compared to in person fraud (LexisNexis, 2016).
It has been realized that the use of mobile devices for initiating card-not-present (CNP) payments are increasing in the United States. In the United States, the transactions of mobile payments increased from $32 billion to $52 billion from 2013 to 2014 respectively (Trulioo, 2015; Pandy, 2016). The card-not-present (CNP) frauds represent 25 percent of the losses of global frauds. According to a report of LexisNexis, despite the fact that the m-commerce transactions represent only 14 percent of the e-commerce sales in the United States, they made 20 percent of total fraud cases. However, in the United States, the m-commerce fraud ratio is 45 percent of the United States card fraud. It has been determined the m-commerce in the United States is representing one third of the United States e-commerce sales and its will continue to grow due to which fraudulent activities will grow as well (Pandy, 2016).
The impact of m-commerce fraud on the economy is small
According to a survey, in 2012, the online frauds cost the United States $3.5 billion. Companies of the country made significant measures due to which the rate of online frauds fallen from 1.8 percent to 0.9 percent from 2004 to 2012. However, the rise of m-commerce losses is higher, with the highest cost of $3.34 for each fraud that occurs (Trulioo, 2015). The overall cost of these frauds on the national economy of the United States is small. It is just a pilferage; maybe it is because the m-commerce makes only 0.80 percent of the total e-commerce sales that means m-commerce represents 0.533 percent of the total economy (See calculations in the appendix).
it has been determined that due to the internet utilization the sales of retail sector increased, but due to m-commerce crimes, people are not feeling comfortable, which is a barrier to the expansion of m-commerce and affect the sales and therefore economy of the United States as well (McAfee, 2013).
The above analysis clearly revealed that increased in technological development enhanced the difficulties of preventing organizations from frauds the one example of technological development in e-commerce is m-commerce. Despite making only 14 percent of e-commerce, the ratio of m-commerce fraud is highest as compared to any other type of e-commerce. The ratio of frauds in m-commerce is higher because the mobile utilization is increasing more rapidly as compared to any other medium of B2C online business. The increased use of mobile is encouraging the fraudulent activities. Research disclosed that to prevent the mobile frauds is 7 percent more difficult as compared to the in person sales. From the enhancing use of mobile for making card-not-present (CNP) payments, it is clear that the fraudulent activities will increase. Currently, m-commerce merchants are spending a huge amount of money with the aim of preventing fraudulent activities than any other merchant. Despite the huge investments, the ratio decreased, but still higher than other sorts of e-commerce frauds did.
Conclusion
There are different types of e-commerce applications. For this paper, the focus has been given to the business to consumer (B2C) m-commerce payment frauds, which is the most prevalent type of e-commerce. It has been determined that the total retail sales make 2/3rd of the United States economy and e-commerce makes 7.5 percent of the total retail sales and m-commerce makes 0.80 percent of the 7.5 percent e-commerce sales. This means the m-commerce sales make a very small portion of the total economy of the United States due to which the impact of m-commerce frauds is also small.
References
Baldauf, K., & Stair, R. (2010). Succeeding with Technology. USA: Cengage Learning
DeNale, R., & Weidenhamer, D. (2016). US Census Bureau News. US Department of Commerce. Retrieved May 8, 2016, from https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf
Focus economy. (2016). Retail Sales in USA. Focus Economics. Retrieved May 8, 2016, from http://www.focus-economics.com/country-indicator/united-states/retail-sales
LexisNexis. (2016). True Cost of Fraud 2015 Study Infographic. LexisNexis. Retrieved May 8, 2016, from http://www.lexisnexis.com/risk/insights/true-cost-fraud-infographic.aspx
McAfee. (2013). The Economic Impact Of Cybercrime And Cyber Espionage. McAfee. Retrieved May 8, 2016, from http://www.mcafee.com/us/resources/reports/rp-economic-impact-cybercrime.pdf
Pandy, S. (2016). Payment Strategies: Mitigating Fraud Risk in the Card-Not-Present Environment. The Federal Reserve Banks of Boston. Retrieved May 8, 2016, from https://www.bostonfed.org/bankinfo/payment-strategies/publications/2016/mitigating-fraud-risk-brief-february-2016.pdf
Trulioo. (2015). Mobile Payments: Where There’s Money, There’s Fraud. Trulioo. Retrieved May 8, 2016, from https://www.trulioo.com/blog/2015/05/14/mobile-payments-where-theres-money-theres-fraud/
Yuthayotin, S. (2014). Access to Justice in Transnational B2C E-Commerce: A Multidimensional London: Springer
Zhou, Z. (2004). E-commerce & Information Technology in Hospitality & Tourism. Canada: Cengage Learning
Appendix
Total retail sales = 1184753 (2/3rd or 66.667% of the US economy)
Means total economy the United States is $1777120.614 million and m-commerce represents approximately 0.53 percent of the total economy that makes $9478.02 million only.
