Question

Amazon: Describe the fraud risks (Please be industry specific, you can find this out indirectly by reading more about the company)

Answer 1

E-commerce is one of the fastest growing sectors in India today, adding 6 million new entrants every month, supported by a growing internet user base1 . With such a growth pace, the e-commerce industry is projected to touch around USD 10–20 billion by 2017-20202 . The e-commerce industry, in its present form, is a complex ecosystem. It involves large volumes of transactions, reliance on newer technologies such as mobile wallets for payments and mobile apps for customer access, and dependence on third-party vendors for product procurement and logistics. Over time, the fraud risks, including phishing, identity theft related to payment systems and thirdparty fraud risks in procurement and logistics, such as counterfeiting, bribery and corruption etc., have started collectively impacting e-commerce businesses. In addition, with fierce competition to gain market share through aggressive pricing strategies, such as deep discounting, meeting profitability expectations of investors and the race to seek funds for expansion, the e-commerce companies may be forced to overlook their back-end processes and controls, thereby increasing the risk of frauds. An illustrative fraud-risk landscape of an e-commerce market place company is indicated below:

Order placement processing

Inflated MRP for fake discounts

Unauthorized price change

Unauthorised/fake orders

Presence of black listed entities in the system (who tend to re-apply under a new name to register in the system) in the absence of adequate vendor due diligence

Payment

Credit/Debit Card fraud using stolen information

Payment gateway vulnerabilities (Hacking, Lack of authenticated credentials etc.)

Cash on delivery (non-receipt of payment, fraud by cash collection agent)

System / Network operations

Phishing fraud (Identity theft)

Intrusion/Cyber attacks (e.g. malware)

Pharming

System manipulation e.g. redemption of coupon even on cancellation of order, avail discount on expired coupons, order executed without payment

Returns and refunds

Counterfeit product returns

Return of used products

Tampering with product in order to return it

Customer initiates chargeback without returning the product

Sellers / Vendors positioning

Fake/forged documents for registration

Ghost vendors fraud

Impersonation by sellers for buy back of goods

Inadequate vendor background checks resulting in third party fraud risks

Delivery logistics

Leakage/ misappropriation/ theft of goods from warehouse

Change of shipping address after order placement to deliver the goods

Product intentionally misplaced/replaced/ not delivered

Delivery of defective/ counterfeit products