Online Insurance Fraud: How It Works and How to Prevent It

by Gergo Varga
Marketplaces are magnets for fraudsters.
Unscrupulous individuals use them to sell non-existent items, buy with stolen credit card numbers, or even scam your legitimate customers. On Facebook Marketplace, which is by no means the only popular online marketplace, one in six users say they have been scammed.
Let’s discuss how to put an end to marketplace fraud.
Marketplace fraud happens anytime someone buys or sells something illegally on an online marketplace. This may include listing products or services for sale that do not exist or whose qualities are exaggerated.
Fraudulent buyers, meanwhile, purchase marketplace items with stolen credit cards, which is a form of card not present (CNP) fraud and triggers chargeback requests from legitimate cardholders.
Because marketplace buyers and sellers need to reveal personal information such as shipping addresses, scammers also tend to target marketplaces with phishing and social engineering attacks. A common scam, for instance, sees fraudsters pose as a seller, only to redirect the interested buyer to a malware-ridden website.
A report by the Federal Trade Commission in 2019 found that, out of the 3.2 million marketplace complaints in that year, fraud made up 53.1% (1,697,934) of the cases. Identity theft was second with 20.3% (650,572).
Marketplaces that allow customer ratings are also under pressure to monitor and prevent fake reviews.
Meanwhile, a fairly new and growing worry is triangulation fraud, particularly effective on marketplaces such as eBay and Amazon.
Finally, it should also be noted that these days, marketplace fraud is almost synonymous with Facebook Marketplace fraud. The social network’s marketplace has become a favorite for fraudsters, who create fake profiles in order to go through with all the aforementioned scams.
Learn how Homegate automates listing reviews by leveraging the power of SEON’s data enrichment to reduce fraud.
Read the Case Study
The most common scams feature variations on the theme of selling fake or non-existent items or buying with stolen credit cards.
But there are more sophisticated fraudulent attacks too. Here are five noteworthy examples.
Triangulation fraud is a growing form of online fraud that takes advantage of online marketplaces’ lack of merchant profile verification. Here is how it works:
What makes triangulation fraud particularly hard to detect is that neither the original customer nor the marketplace is informed of the chargeback request.
It’s only the person whose card was stolen and the shop where it was used that have to sort out the issues created by the fraudsters.
The overpaying scam involves stolen credit card numbers. A fraudster will contact a seller and pretend to be interested in purchasing the item. They do so but overpay, so then they ask for a partial refund through another payment method.
If the merchant agrees, the fraudster pockets the refund, while the initial payment is either canceled by the legitimate cardholder or blocked. The merchant ends up paying the fraudster and not getting money for the sale.
Fake rental ads boomed during the pandemic, as many renters could not immediately visit the property. Fraudsters exploit this scenario by creating listings using photos and descriptions from other apartments – for example, found in other cities.
When the interested renter asks for more information, the fraudster explains that there is a lot of interest and recommends securing the place with a partial deposit. Of course, as soon as money changes hands, the fraudster disappears along with the fraudulent property listing.
Note that the same technique is also increasingly used for used cars, a market that has also grown drastically in recent years.
In this scenario, a fraudster steals phone numbers for phishing attacks. Here is how it works:
If this has worked out, the fraudster is now in charge of a Google Voice number linked to someone else’s phone number. This allows them to call victims to defraud them, or attempt SIM swap fraud.
Fraudsters need personal information to create believable online profiles – for instance, to open bank accounts or take out loans. Marketplace listings are a perfect place to harvest data, as it would make sense to share personal information to arrange shipping for an item.
The fraudster will contact a seller to arrange to pick up the item instead of having it delivered. They will request the seller’s home address, email address, and phone number to confirm the pickup. This much personal information plus a full name is enough for fraudsters to steal identities for all kinds of nefarious purposes, including the creation of synthetic IDs.
Partner with SEON to reduce fraud rates in your business with real-time data enrichment, human-friendly machine learning, and advanced APIs.
Ask an Expert
The oldest trick in the book, but still worth mentioning: Bait-and-switch fraud happens when buyers are lured with a low price, only to be asked for more and more money. The old adage applies here: If it’s too good to be true, then it probably is not true.
Also, note that fraudsters favor being paid in gift cards or cryptocurrencies, which aren’t traceable and which work like de facto internet cash.
A company like Facebook spends millions on security and still sees its marketplace riddled with fraudsters. But there are still steps you can follow to make life easier for your legitimate customers.
As a fully-fledged fraud prevention solution, SEON allows marketplaces and marketplace sellers to monitor, filter, and block bad agents before they can create a marketplace account, without interrupting the customer experience of good users.
Here is how it works:
high risk | You decide which risk score is high enough to automatically block users. SEON recommends 20 (out of 100) but this is easy to adjust on the platform. |
low risk | Good customers, as evidenced by their risk score, can enjoy marketplace access without having their journey interrupted by requests for extra verification. |
medium risk | Medium-risk users could be actual fraudsters or false positives. For maximum confidence, review them manually or request additional verification from them. |
You can use the same rulesets to identify suspicious accounts and take out entire fraud rings on your platform.
All of the above is available in an affordable, modular package, with no setup or support fees. Want to learn more? Get in touch today.
Telltale signs of marketplace fraud include accounts with no history, generic names, and stock profile pictures. Behavior-wise, watch out for people who try to get you out of the marketplace to continue the exchange elsewhere, ask to pay extra for your item, or ask for a phone number.
Marketplace fraudsters will list items for sale that do not exist. Fraudulent buyers use stolen credit card numbers and ask to pay online rather than meet in person. Others harvest personal data – for instance, by sending you a shipping form. Google Voice fraud happens when fraudsters ask for your phone number, with the goal of registering it for themselves on Google’s VoIP service, to then use it for marketplace fraud.
To avoid marketplace fraud, you should follow common sense. If a listing sounds too good to be true, it probably is. Monitor the buyer or seller account for discrepancies or suspicious data. Immediately leave if someone asks you for information that is not relevant to the sale.
Sources
Showing all with `` tag
Click here
Gergo Varga is SEON’s Product Evangelist. With more than 10+ years of experience in the Hungarian and international risk management sphere, he has developed an astute knowledge of RiskOps and Open Source Intelligence. He is the author of SEON’s Fraud Prevention for Dummies guide.
The top stories of the month delivered straight to your inbox