PayPal Data On Impact Of ‘Liar-Buyer’ Fraud

A new research paper written by three academics who used to work for PayPal says that there’s one type of fraud that’s becoming increasingly common (yet widely unknown) in today’s e-commerce space: “Liar buyer fraud.”

The paper, titled “Liar Buyer Fraud and How To Curb It,” was written by Markus Jakobsson, a former principal scientist in consumer security for PayPal and two former interns, Hossein Siadati and Mayank Dhiman. Siadati is currently a PhD student in computer science at NYU School of Engineering and Dhiman, a PhD student at the department of computer science and engineering at UC San Diego. The three academics came together to author the piece that examines the fraud scheme.

“We describe a common but poorly known type of fraud – so-called liar buyer fraud – and explain why traditional anti-fraud technology has failed to curb this problem,” the authors wrote. “We then introduce a counter-intuitive technique based on user interface modification to address liar-buyer fraud, and report result of experiments supporting that our technique has the potential of dramatically reducing fraud losses.”

The researchers said they used “role playing and questionnaires” that incorporated the behaviors and views of 1,700 people. They broke down men versus women when it comes to “liar buyer fraud” and how it impacts fraud committed against e-commerce companies.

“[We] found that our proposed technique results in a statistically significant reduction of fraud rates for both men and women in an experimental setting. Our approach has not yet been tested on real e-commerce traffic, but appears sufficiently promising to do that. Our findings also support that men are more willing to lie and defraud than women are; but maybe more interestingly, our analysis shows that the technique we introduce make men as honest as women,” the authors concluded.

The paper dove into how this type of fraud is impacting the industry and how consumers more likely to commit this type of fraud would likely conduct their businesses in order to receive a refund for a product they never paid for. The authors relied on PayPal’s research figures that shows that 25 percent of direct fraud losses are a result of “liar buyer fraud.”

“In a typical liar buyer instance, a consumer orders and receives some merchandise, and then reports it not delivered in order to get a refund. Commonly, the liar buyers are not repeat fraudsters, and many of them are believed to act in response to losing a similar amount to another instance of fraud – then contesting the charges but not being ruled in favor of,” the authors wrote.

So what can help reduce this problematic type of somewhat less known fraud? Their research shows that users were less likely to file a fraudlant claim if they knew their computer or computer’s location was recognized.

“We believe the reason for the reduction is that the would-be liars can visualize their lack of anonymity at a time when they are deciding whether to perform a fraudulent action,” the researchers wrote. “Interestingly, we also showed that users were not affected by knowing that their computer was recognized, but without their location being pin-pointed, or the other way around.”

But why isn’t “liar buyer fraud” being discussed more in the industry, particularly because of its impact to the retail and e-commerce markets? Well, for many reasons, the researchers say.

“One reason is that while informed consumers can be cautious and thereby reduce their exposure to abuse such as phishing and virus-based attacks, there is not much that typical consumers can do to reduce the losses due to liar buyer fraud. …Another reason why liar buyer fraud is not first page news is that it has the semblance of a victimless crime, much like tax evasion. This is based on a common misunderstanding of who bears the burden of such losses, though. Quite commonly, it is a peer consumer who loses money,” the researchers concluded.”Other times, the losses are absorbed by an organization and passed on to consumers in the guise of higher service charges.”