Risk Management in Online Transactions

Abstract

There has been a significant increase in the number of online transactions on various platforms. Online transactions are boosting the global economy by offering convenience and speed of the money transactions between merchants and customers. For online transactions to be successful, there is a need to have a reliable network that is enhanced by a security system to safeguard the information of the transactions. The networks used to secure online transactions are not entirely effective hence there is need to find ways to improve the service.

E-commerce is becoming the main method of transaction for many people, and it is expected to grow more in the coming years. More parts of the world are getting access to reliable internet and adopting e-commerce as their way of transacting.

The paper focuses on the current state of the online transactions and as well evaluates the various ways that the system can be improved to get rid of the existing loopholes. It provides insights on the use of the platform to transact as well as ways that both the customer and the merchant can avert risks. The risks outlined are those that have happened before as well as those that are ongoing. It is a call to all the involved parties to ensure that there are no irregularities to secure this sector that is helping many people.

There have been varied acceptance levels of the online transactions in different parts of the world, and the experiences have defined this that each has. More and more companies are opting for e-commerce, and the economy is receiving a huge boost from this (Clarke, 2008). By identifying the issues and challenges involved in this kind of business, the paper makes it easy for anyone to follow up on the issue and increase the security of the information that people provide as well as financial institutions increase their security systems to safeguard clients' information.

Introduction

There have been major developments in the field of technology over the years. The invention of the computer has led to the development t of other technologies that have helped make the life of humans better and easier. Among the developments is the discovery of the internet. It has increased the convenience of people and helped improve how humans interact through communication with each other. Almost more a third of all humans in the world use the Internet regularly, and this is an indicator of how much it has come to be part of the human life. Social media has stemmed from the developments in technology, and this has led to the increased interaction of people through social media platforms such as Facebook, Twitter, Instagram, and Flickr among others.

At the moment, a sender is enabled to send messages over long distances, and the receiver will get the message instantly. The invention has reduced the amount of time that people used to use to communicate with each other. Besides the developments in communication, the internet has made it possible for people to conduct businesses online. The communication boost is increasing the way these businesses are conducted as the merchants, and the consumers can share information in a very short period (Clarke, 2008). This is becoming more common because of the fast and effective way that the two parties can agree on a specific aspect.

There are many businesses which advertise and sell their products online, and the buyers can readily order and get their purchases delivered to them at their convenience. Many companies such as Amazon, eBay, and Alibaba have perfected on the business of online marketing and selling of products and many people now depend more on online shopping and transactions (Chaffey, 2007).

Alibaba brings together all sellers from across the world where they advertise their goods and people from any region can easily communicate with the merchant regarding the prices and on how the items can be delivered. This has replaced the traditional methods where business people had to travel distances to import goods. A country like Japan has perfect in the business of second-hand goods, and people can view the cars online, bargain on their prices, pay for the cars plus the shipping fees. They can then wait for the car be delivered right to the region that they are in. The convenience that has been enhanced by online transactions is much notable.

The payment for most of these goods and other services are entirely made online. People are now used to the use of online transactions unlike the traditional methods of paying for services and products that involved the giving out of money. The online electronic payments have become integral parts of the e-commerce as more and more people are preferring online transactions. In most cases, money is exchanged electronically, and it needs one to have a computer, be connected to the internet, and have a digital stored value system. The payments can be made at any time as long as the transacting parties have agreed on the terms of their business.

The process has been loved by many because of the convenience that comes with the transactions. Because it is a cashless system, there are no concerns of people being robbed their money like when they used to carry the money physically. The merchant who is offering services or products must connect to the issuing bank for the transactions to be successful. This is to ensure that the information that is given by the customer is secure because most of it is highly sensitive and there is a need to protect it from unwanted invasion.

Security is an important aspect of online transactions. The primary factor in online transactions is to ensure that the information of the client is secure hence many banks and merchants have invested a lot on the internet security. Many people still have doubts about the amount of security that is offered to their information contained in the credit cards that they transact with. This has made many of them skeptical of using this form of transaction. E-commerce can be used in a business-to-business, government-to-government, business-to-government, government-to-business, and consumer-to-government scenarios among others.

Evaluation of Online Transactions

The development of the internet led to the worldwide use of e-commerce as a way of transacting business. Since its inception, internet use has been on the rise, and even people from third world countries are connected, and this has made the world a global village. The use the internet has grown rapidly over the years, and the access to various gadgets have necessitated this. The first e-commerce transaction took place in 1995, and since then there have been efforts by various players to take a lead role in the business.

With the increased use of smartphones from various parts of the world, e-commerce received a huge boost and had enhanced the business in various countries. Anyone from any part of the world can shop for a specific product from Alibaba or Amazon have it delivered to their locality after ensuring that they have paid for the goods. Internet users have been increasing over time, and now nearly a third of the world population is connected to the internet.

The two definite variety of e-commerce earnings are the Internet-based remuneration structure and the electronic undertaking orders. Internet-station revenue has four categories which are credit cards, e-cash, debit cards, and the smartcards (Clarke, 2008). On the other hand, the electronic transaction-based payment system includes a secure electronic transaction, net bill, cybercash, and first virtual holdings.

The use of the internet for shopping in the United has seen a steady rise and in 2003, nearly $3.5 trillion consumer spending was reported. Online payment systems are becoming more and more famous because of the need to have secure transactions as well as the global economic expansion. The United States leads in cross-border trade regarding imports and exports.

With this at work, there is a huge purchasing power that exists with the American citizens, there is advanced technological knowledge, and the American people are huge fans of online shopping. This is evident by the number of online shopping platforms that include Amazon, eBay, Kohl's, Walmart, Zappos, Etsy, Modcloth, Ralph Lauren, Forever 21, Eastbay, Disney Store, Netflix, and Newegg among others. According to Nastace et al. (2007), the main benefits that have been reported to come with online transactions include the following:

• The system has improved the cash flow efficiency compared to the old methods of transfer of funds from one point to another. There are minimal losses involved, and the recipients get their money in real time.
• The transactions are guaranteed, and there is minimal risk of losing the funds. When the consumer pays for the goods to the merchant with the goods, there is an assurance that the transaction will be complete and he or she will receive the goods.
• Before online transactions, the costs of transacting money manually was much expensive, and this has been reduced by the increased purchasing and transfer of funds electronically using the internet. People can send huge amounts of money across the globe at affordable fees and with zero risks of funds loss.
• There is increased protection of sensitive information from both the customer and the merchant as there have been improvements on the security systems that are used. The storage of information in paperwork before was hectic and exposed sensitive information, and this could hurt both the business and the consumer.
• There have improvements in protecting the payment provider as fraud risk is much reduced with online transactions. Financial institutions and merchants have installed security systems that guard against internet-based fraud that has seen many people lose a lot of money to cybercrime.

The tables show that there has been a great increase in the percentage number of Internet users in the world. Only 16 million users were using the internet in 1995 compared to more than 4.1 billion users by the end of 2017 (Chaffey, 2007). It shows a steady increase in the adoption of this technology, and it is expected that the figure will increase in the years coming. With the increased use of the internet, there has been an increase in the number of e-commerce transactions that are conducted across the world. The E-commerce sales have experienced a surge especially in the United States, the United Kingdom, and China.

Mobile transactions have also been on the rise in different parts of the world. Many people are using their mobile devices to send and receive money. The most recent development in this market is the invention of money sending and receiving platform called M-Pesa in East Africa that has proved beneficial to many local people (Hermon-Duc, (2012). They can send and receive money at the convenience of their homes and recipients can withdraw these monies at designated agents in the region. The method has not gained a lot of prominence across the world because of the fears of losses of money.

There have been vulnerabilities that have been reported as well as accrual money losses, and this has derailed the efforts to make the platform spread everywhere. There has been no enough risk assessment that has been done to help remove these fears hence the need for more research on how to increase the security of mobile transactions. For this form of transaction to take place, there have to be mobile devices as well as an internet connection. The most common devices that are used in this form of the transaction are mobile telephones, Personal Digital Assistants, and wearable computing devices such as watches.

There are many existing payment mechanisms which offer people varied options to transfer value. The system is not risk-free as there is a need for the mechanisms to reflect risk prevention strategies to prevent the lost money by the clients. Many risks are involved which calls for the need to have risk management strategies in place. The use of Automated Teller Machines has managed to avert part of these risks as it has proved to be most convenient in the transactions. People can easily get their monies from the machines and as well use them as depositing points.

The machines use a robust security system that includes the use of a card to access the money as well as the input of a PIN which is unique to every user. The authentication has managed to keep money secure for years, and ATMs are currently used in many parts of the world. The Electronic Funds Transfer at Point of Sale is another important aspect that came with the ATMs which allows shoppers to be deducted amounts from their bank accounts. The interaction between the customer and the financial institution is great protected in this form of online transaction.

The main online payment categories are the electronic credit card method, use of electronic cash, and the electronic checks. All the three categories are famous and have been proved. The electronic cash (e-cash) is important as it helps some the anonymity issues as the customers are allowed to transact without providing sensitive information. Despite the advantage of being used offline, it proves to be hard to be implemented because traceability is important in detecting fraud as well as the information provided in transactions help to solve disputes that may arise.

Electronic checks (e-checks) are important as they involve cryptography which is important in ensuring the transactions are secured. The method is not popular because it takes quite some time for the transaction to be complete and also the use of the electronic credit card has rendered most of its use obsolete. The most common is the electronic credit card (e-credit) which has gained a lot of prominence because of the ability to be used both in online and offline. The e-credit is key in transactions as it leverages the existing credit accounts. The problem with this category is that it cannot provide anonymity and there have been cases of fraudulent activities hence there are security concerns associated with it.

Challenges in Online Transactions

The main aspects that determine the success or failure of online transactions are the security and privacy of the information involved. The trust that an entity can build with the clients' has a huge impact on the success of a business. Security issues have become much popular with the increased use of e-commerce. Privacy involves the ability of the financial institution or the merchant to control the terms in which the personal information of the customer was obtained. As the internet gets more sophisticated, also new technologies continue to emerge. Fraudsters get smart every time, and despite huge measures that have been in place, the challenges have not been fully handled as clients continue looking their money in mysterious ways. The following are among the important challenges that are facing the industry: -

Fraud and Chargebacks

As the e-commerce is on the rise, it has led to the rise in fraudulent cases of payment. Fraud is defined as any form of illegal or false transaction that is done by a cybercriminal. It involves unauthorized transactions, stealing of losing of merchandise, and false requests of the transaction value. Data shows that there has been a misuse of the payment networks. Data theft has also been reported from different parts of the world.

It indicates that with the rise of transactions, frauds are also becoming smart regarding their activities as they fight to match the advances in security systems. Chargebacks are also proving to be costly, and when done in excess, it can lead to a decline in business. There are numerous classifications of treachery in online transactions. Each of them is done differently and they all lead to either the merchant or the customer losing money in ways that they cannot prevent at the time. They include:

1. Phishing - this is the act of sending communication messages through emails or other platforms pretending to be from a legitimate company. It is used to steal data that include credit card details and login information. The attacker has to masquerade as a reputable entity and get an individual to open a message or email.
2. Identity Theft – this is the unlawful taking of an individual's personal information and then using it transact online in a way that only the offender benefits. Even the information that is considered least sensitive or important can be used by identity thieves to commit identity theft. The thieves collect information concerning the date of birth, email address, physical address, the maiden names, bank account details, previous addresses, passwords, and even insurance details.
3. Pagejacking – this is the rerouting of traffic from a specific e-commerce platform and direct all the visitors visiting the site to another different website. It is possible that the new site that customers are directed to contain malicious information that hackers can use to get access to the information of both the merchants and the customers.
4. Advanced fee and wire transfer scams – this is a scenario where hackers target owners of e-commerce platforms and credit card holders and demand money from them to return their credit cards of money value.
5. Merchant Identity Fraud – in this form of fraud, hackers establish a merchant account of a legitimate business and then charge credit cards before vanishing. They do it fast before the owners of credit cards can realize and reverse.

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