Research on the Impact of Internet Fraud on International Trade
Internet Banking at Risk in the Virtual Environment
Technology had greatly influenced the way people do about their daily lives. The convenience that computers and internet brought dramatic changes particularly to the business sector. Technology enabled companies and their clients to make transactions over the virtual environment with the aid of internet connection. Having that convenience of technology allowed the majority of the world's population to rely on internet-based transactions at their own comfort. However, organizations and private individuals are not the only one lurking around the virtual community. There are several eyes waiting to capture those transactions and use them for personal gains. The existence of technological advancement diversified the number of people using it, including criminals that targets innocent people and organizations by stealing large amounts of wealth from other people.
Among the many innovations in internet-based activity is the introduction of internet banking. People no longer have to visit the bank personally to withdraw, transfer funds or deposit money. Complex software and web-based applications enabled the two points of bank transaction to take place in real-time. However, this is the opportunity that cyber criminals are looking to conduct their dubious operations. The most common criminal act committed in the cyber world is fraud. Cyberfraud is defined as the act of false representation of identity to conduct virtual transactions using credentials of organizations or individuals for the purpose profit accumulation (Cybertopcops.com, N.D.). Cybercrime is the general term in which fraud is associated with. The study made by Ponemon Institute (2011) on the 50 participating organizations indicated that there are about US$51,925,510 of annual revenues losses recorded from 2010 to 2011 because of cyber crimes (Ponemon Institute , 2011, p.4). The most common tools used by cyber criminals to commit cybe rcrimes are mostly viruses, malwares, trojans and worms. When those entered the computer system they gather sensitive information from the host.
The banking sector is among the many business organizations frequented by cyber criminals to hack and steal data from. The United States Trade Commission reported the rising number of internet fraud in internet banking through statistical analysis based on the number of complaints they received. From 2004 to 2008 there has been a significant increase in the number of reported incidents of fraud in internet banking based on the three categories such as internet-related fraud complaints, identity theft and other mix of fraud issues. The chart below indicates the breakdown of common contacts in which fraud was committed in relation to false internet bank transactions.
Paget (2008) revealed that the most common point of contact for cyber criminals in committing fraud is through internet and e-mail which takes up 52% of the reported incidents since 2008 (Paget, 2008, p.4). Variations of method in internet banking frauds were also revealed in Paget's study showing 28.6% of reported frauds are related to undelivered merchandise, 16.3% are related to auction fraud and 14.4% is related to confidence fraud. The rest of the percentage goes to check fraud, Nigerian scams and credit/debit card frauds (Paget, 2008, p.5). All of the methods mentioned involves monetary transactions compromising the victim's bank account. Since all of the methods requires a person to complete the transaction by putting in bank account number or credit card number, most of the incidents lead to exposure of such sensitive information allowing access to take money from the given account and card numbers. All of which are associated with internet banking which causes losses to the victims and to the bank involve.
(Paget, 2008, p.3)
The prevalence of fraud in internet banking greatly affects the banking sector in terms of international trade. The exponential growth of internet fraud affects online commerce resulting to not only loss of revenue, but also impacts the reputation of the business as a whole. When an individual was victimized by fraud, one of the consumer's main concern is the strength of security that their bank has against cyber crimes. If the banking sector continued to be vulnerable to cyber attacks, the consumer's level of confidence to the company would definitely decrease. The importance of knowing the extent of damage that internet fraud brings to the international trade is to minimize if not to totally eliminate the risks of using e-commerce. E-banking for instance has been a useful platform for the banking sector in terms of expanding their reach in the global market. Having a bank that has a capability to transact internationally allows the consumers to reach out for products that are not available locally. This is a great advantage for the bank because normally eye-to-eye transactions in the bank limits them on the number of services that they can offer to the consumers. However, e-banking enables the bank to serve their customers in paying their purchases regardless of location. This is beneficial to the bank as each time their customers use the e-banking services for their transaction means revenue for the bank in a form of fund transfer fee, transaction fee and dollar exchange rate fees.
These transaction opportunities entails business growth for the bank because generally speaking, banking system is one of the most important element supporting economic development (Salehi and Alipour, 2010, p. 207). The way internet banking help bank companies is by lowering the cost of transaction, expanding the reach of trade through self-service options and acquire international trade opportunities through foreign e-commerce traders (Salehi and Alipour, 2010, p. 203). However, all of those benefits are threatened by the existence of internet fraud. If a consumer is for example was lured into a fraudulent transaction over the internet and exposed his bank details, tendencies are the fraudster keeps the bank record and later use it to do fraudulent transactions.
The e-banking system rely on security data that the customer put into the system, when authenticated by the system the transaction will be considered valid. However, if when transfers are made without the knowledge of the real account holder, the customer is the first one to be affected. Next thing will happen is when the customer finds out that his bank account was compromised he will make claiming of refunds that most of the time are voided because of the legitimacy of the transaction since it was authenticated. What will happen is, the customer will switch bank and if the customer reported the incident to the trade commission the bank will undergo investigation compromising their business ins return. Another thing is the bank might lose business with international traders because of the frequency of fraudulent incidents. Unfortunately, it will lead to the bank losing credibility and eventually go out of business. E-commerce involve parties from different parts of the world, the implications of risk are also associated in the international trade (Holman, 2006, p.17). What makes it more difficult is that the offending parties are hard to identify, making it also difficult for aw enforcement to take necessary action (Holman, 2006, p.17). In a nutshell, internet fraud impact international trade by means of consumer loss of confidence resulting to loss of revenue and business credibility.
References
Cybertopcops.com (n.d.). Cyber fraud, scams and hoaxes - Definition and prevention. Cyber Top Cops - The Cyber Security Experts. Retrieved June 17, 2012, from http://www.cybertopcops.com/anti-fraud.php
Holman, K. G. (2006). eFraud in Online Commerce: Impact on Business Reputation & Consumer Confidence. 1st Annual Web Services Security Conference, 17. Retrieved from unatekconference.com/images/pdfs/presentations/Holman.pdf
Paget, F. (2008). Financial Fraud and Internet Banking: Threats and Countermeasures. Report, 3-5. Retrieved from www.mcafee.com/us/resources/reports/rp-financial-fraud-int-banking.pdf
Ponemon Institute (2011). Second Annual Cost of Cyber Crime Study. Benchmark Study of U.S. Companies, 4. Retrieved from www.arcsight.com/collateral/whitepapers/2011_Cost_of_Cyber_Crime_Study_August.pdf
Salehi, M. (2010). E-Banking in Emerging Economy: Empirical Evidence of Iran. International Journal of Economics and Finance, 2(1), 203, 207. Retrieved from ccsenet.org/journal/index.php
