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Guide: How fake accounts hurt the sharing economy & how to prevent them

Fake accounts, anonymous users and a multi-billion dollar sharing economy: What does it all have in common? Whether it’s homes, cars, bicycles or scooters for rent – if users can’t feel safe using sharing economy platforms, businesses risk losing their customers.

We take a closer look at how the sharing economy relies on selling safe spaces for the end-consumer, and some of the techniques businesses can employ to prevent the rise of fake accounts, anonymous users and fraudsters on their platforms.

What is the sharing economy?

The myriad companies that make up the sharing economy provide new ways for people to share and use everyday items. From transportation goods (car-sharing services such as Uber and bike-sharing & scooter-sharing services such as Lime) to temporary lodging, including Airbnb, Vrbo and Booking.com, the sharing economy is here to stay.

Alongside adding competition and making goods more accessible, the sharing economy has also helped foster more integrated communities, wherein individuals can share products and resources with one another.

The sharing economy has, in fact, redefined the way we think about property, creating a new economic model which focuses on the sharing and use of goods as opposed to outright owning and then storing goods when not in use. A common occurrence of past generations was to purchase goods (let’s say a bicycle, for example), use it occasionally and then store it in the garage or basement, perhaps forgetting about it, only to find it some years later in a state of disrepair and ultimately selling it or passing it on.

Today, if someone wants to occasionally use a bicycle, they can simply locate one via a smartphone app from an online bike-share provider (such as Mobike or Donkey Republic), use it, and then leave it for the next user.

The same also applies to temporary lodging too, such as with Airbnb, where individuals could offer all or part of their home to vacationers, often leading to unique stays whilst allowing the tourist to live like the locals.

Fake accounts and fraud in the sharing economy are growing

Both buyers and sellers depend on knowing precisely who they are dealing with. Consumers have the right to be comfortable in the knowledge that they can trust a stranger with their own and their family’s safety. And the sharing economy platforms have the duty of care towards their users to provide a safe and fair marketplace for all. In economics, this is known as “collaborative consumption.”

The sharing economy depends on the trust of other users to look after the products, lodgings and devices they share. A lack of trust only leads to adverse negative outcomes.

We take a look at some of the most outrageous examples of sharing economy fraud in recent years:

The great bicycle-sharing scandal

Bicycle sharing schemes have been one of the largest casualties of a poorly enforced and under-regulated sharing economy. As an environmentally-motivated answer to the rise of China’s massive car-ownership problems, several Chinese startups attempted to re-invent the sharing model using big data, ensuring large amounts of venture capital were invested in highly competitive group of global bicycle sharing giants from 2014 – 2018.

Traditionally, the bicycle sharing model was designed around designated drop-off stations for cyclists to lock their bicycles, which restricted users to an inflexible “docked” model. Where the Chinese model departed from this idea, users were no longer restricted to docking stations or drop off-points. As is the case with the overall sharing economy, the smartphone’s GPS had ushered in a new functionality, built on trust and access to almost unlimited user data.

Now that users were freed from restrictive drop-points, bicycles could be left almost anywhere within this ‘dockless’ system. As a result, thousands of bicycles were found strewn across canals, dumped in rivers, tossed across beaches and dunked in harbours all over the world.

Prominent venture capital firms that included Sequoia Capital and Tencent, each played a role in funding the downfall of this collaborative economic model.

Fake accounts damage sharing economy for all users
Thousands of broken shared bikes dumped at open space in Hongkou district of Shanghai, China

Weak User Identity Verification Processes

The reason for this willful environmental vandalism in the bicycle sharing economy? A lack of user culpability and an overall weak identity verification system.

Mobike, for example, which still operates globally, only requires a telephone number and a small holding deposit (10 euros) to gain access to a bicycle. The value of the bicycles are obviously much greater than this token amount and the app’s poor security features (no additional document verification required) allow fake accounts to be easily registered. This encouraged some users to willfully take advantage of a poorly designed identity verification system.

If the user can expect no consequences for their actions, because they can stay essentially anonymous on a sharing platform, why would they be motivated to act appropriately without oversight?

Sharing operators face growing regulatory risk when they don’t secure their systems from launch. Singapore-based company, oBike, were the first to be kicked out of Australia in June, 2018.  Victoria’s Environment Protection Authority (EPA) applied new pressure to sharing operators to clean up their act or face permanent bans when they didn’t comply with new bicycle sharing economy regulations.

E-scooter user growth treads a similar precarious path

Eventually, the rapidly-changing regulatory burden and willful vandalism of bicycles were so widespread, that some of the largest Chinese bicycle sharing companies went bankrupt and the venture capital dried up, along with the business model.

By 2019, just as the bicycle sharing model had warned, the rise of the e-scooter was also starting to face the same launch issues: poorly regulated identity verification apps, lack of transport planning and limited regulatory oversight were already causing headaches for governments and planning officials across the world.

When a user is positively convinced of their investment and participation in the sharing economy, economists call that form of motivation, “fractional ownership”. The lack of ownership or responsibility presents an opposite problem though, and is one of the driving points of failure within the underlying ‘sharing’ part of the sharing economy.

The Home sharing economy

Airbnb has more than seven million properties in nearly every city and country across the world. While testament to the stunning growth of the sharing economy, the sheer scale of these platforms lays bare the difficulties associated with confirming the identity of every single person who accesses or provides services.

Where platforms like Airbnb or Vrbo are concerned – the homeowners need to be reassured that they’re renting to legitimate people, and that any damages would be covered if things go wrong. For holidaymakers, it’s crucial to know exactly whose home you’re staying in, so having  a user’s identity and credentials verified (and accurately) is vital.

A quick google search returns innumerable horror stories on the various scams and poor experiences that people have had with Airbnb. On the flipside, there are many people who have also had wonderful experiences. It appears to be human nature to report a negative experience than write about a good experience. And the bad reviews hurt the bottom line of Airbnb in a big way.

Financial interests to boost platform safety and accurate verification of users

An investigative story published on Wired exposes the degree to which fraudsters are willing to go in order to scam Airbnb’s users:

“Airbnb empires are being rapidly scaled and monetised, with professional operators creating scores of fake accounts, fake listings and fake reviews to run rings around Airbnb, local law enforcement and the guests who place their trust in the platform.”

The article describes how entire new buildings are being used as Airbnb units and being managed through a variety of international backdoors and secretive accounts to do so. These buildings were never zoned this way and would never have been approved if they were.

Another Airbnb scam involves rental scams. This scam appears worldwide, wherever people are looking for a place to live in a tight housing market (ex. Berlin). A rental place will be posted on a rental website like immobilienscout24.de for instance. Once contacted, someone will invite you to locate the place on Airbnb and make a down payment of 1 month.

As the saying goes, clearer heads prevail; but when you are desperate for a place to live, it is all too easy to jump on any rental offer that comes your way and even forgo seeing it in person before sending a deposit.

The longstanding not-for-profit Better Business Bureau, which operates in the North American market, recently published a report on the sheer size of rental scams occuring on room rental platforms. One survey, cited by the BBB, found that 43% of people using these sites in the United States encountered some sort of fraud. The survey points out though that more than 5 million renters in the U.S. have lost money in this way.

As part of its role, Airbnb is planning to verify 100% of all its listings by the end of 2020, but only after 5 people were tragically killed at a rental listed on its platform. Furthermore, Airbnb users regularly complain of having their accounts hacked. There are numerous websites and forums devoted to stories of Airbnb’s identity verification management systems failing and causing financial damage to users.

As Airbnb plans to launch its IPO in December, 2020, safety steps which include a thorough identity verification platform will be important to maintain consumer confidence behind the brand.

Ride sharing economy

There are currently around 4 million Uber drivers and 2 million Lyft drivers worldwide. Launched, respectively, in 2009 and 2012, the rate of growth of these two ride-sharing services is nothing short of incredible. Ride-sharing is certainly a pinnacle of the sharing economy.

However, due to the fast growth, less than sufficient attention has been given to the operations and the security of the platforms. There has accordingly been a huge influx of fake user accounts and scams run on the platforms.

It is not enough to publish an article or multiple articles on the scams that are out there. Not everyone will read them or follow up on them. And the scammers are always changing their methods to stay ahead of the game anyway.

Uber, for instance, is no stranger to fraud on their platform and much to their credit they have been actively fighting it by employing machine learning technology to stop the myriad scams.

These scams run the gamut from GPS-spoofing apps, where a scammer uses two phones to fake rides all the way to offering fake discounts on chat apps – all the while using stolen credit cards to pay for the rides.

Fake accounts and stolen cards leave ride sharing platforms exposed

The use of stolen credit cards and fake accounts across these ride sharing platforms is reported on by FICO, a data analytics company based in the US that primarily deals with credit ratings. They recently published a report on credit card fraud in the ride-sharing industry which demonstrated how criminals are overwhelmingly using these popular ride-sharing apps to “test” stolen credit card numbers to see if they work.

fake accounts and credit cards risk damaging sharing economy brands

If fraudulent activity isn’t enough to convince you of the need for a more resilient online identity verification process, then perhaps another real problem of the ride-sharing economy will – sexual assault.

In Uber’s first ever safety report, the company revealed that there were 6000 sexual assaults over a two year span in the US market. While the media took this number and ran with it, a well-researched article on The Conversation points out that, while even 1 case of sexual assault would be too much, Uber’s numbers are lower than other transportation providers.

Of course, there is always a risk when you enter a car with a stranger, whether they have undergone a background check or not. And even though both Uber and Lyft are taking positive steps when it comes to preventing sexual assault and other crimes, they should aim for 0 cases of sexual assault.

The issue of these ride sharing apps is that they use a fairly unsafe digital onboarding process and neither Uber nor Lyft employs background checks on their drivers – and they certainly don’t meet with drivers in person before allowing them to begin work. This means that they should at least implement the most robust and technologically advanced online verification process available, such as that offered by PXL Vision.

Ridesharing apps are the wave of the future but it is still a relatively new technology. And with all new technologies, it is important that the industry continues to innovate and make its product safer for consumers. It is our belief that with a high-quality online identity verification technology in place, the amount of fraud and other harmful activities would go down. If both parties to a ride share transaction could be absolutely certain of the other’s identity then a more secure ecosystem would result.

In our related article on cybersecurity, we take a deeper look at this issue, and provide some essential practical tips for businesses trying to verify customers online – it’s especially relevant to the sharing economy.

How to prevent fake accounts in the sharing economy in 3 simple steps:

1. Identify the appropriate identity verification tool for each use case

A well-designed and flawless digital identity verification process is one that is able to prevent fraudsters from creating fake accounts in the first place.

Every sharing economy business has different needs, depending on how they onboard their customers and the level of risk their customers are exposed to. For example, a customer who hires a bicycle with false credentials is inherently less of a financial risk to a company than a customer who attempts to defraud a car-sharing or house-sharing business – though both are a burden on the industry.

Therefore, the type of identity verification technology/method will need to be scaled to ensure the level of risk is met. Sophisticated ID verification techniques (like facial biometrics) which are designed to weed out fake accounts with accuracy, are going to be vastly more useful than an email or social media single sign-on.

In fact, mobility and sharing economy businesses that act to ensure more secure onboarding techniques will also be more attractive to customers, safe in the knowledge that they are also protected from fraud when they rent a car or hire a vacation home for the summer.

2. Determine the most secure identity verification tool for your business

Various forms of identity verification methods in use today are used to authenticate and prove one’s identity. The most common and least secure method asks users for their email address to which a confirmation link is sent. The issue, of course, is that individuals can have an unlimited number of emails under just as many aliases.

Another method asks for a phone number to which a text code is sent which needs to be entered. This one adds a layer of inconvenience to would be fraudsters, but is still easy to spoof. A number of telecommunication resellers will happily sell you a sim card without any form of ID verification in many parts of the world.

Better methods ask the user to upload important documents or better yet to appear in a live video verification with an agent. Of course live video methods are costly to companies and can also be fraudulently worked.The best verification methods today use fully automated AI technologies for checking the authenticity of government issues identity documents,  running facial biometric recognition to check whether the document belongs to the user and “liveness” detection to prevent people from using printed photos, video recordings or 3D masks held against a camera.

The smartest tool currently available on the market uses something known as ‘passive liveness’, which completely avoids the need to perform orchestrated instructions on camera (known as ‘active’ liveness) and significantly reduces customer dropout rates.

Make sure you read our article on passive liveness technology for more detailed information on this very interesting topic!

3. Focus on conversion optimisation

Not to be overlooked, the success of the sharing economy is not only reliant on the overall level of security and how those security features are implemented across different sharing apps, but the rise and subsequent fall of companies operating in this industry often point to one central area of neglect in the sales and marketing process: poor conversion optimisation.

Why is customer conversion key? Simply having a highly secure solution will not help if your users cannot navigate through the onboarding process confidently. It’s not enough to have users download your app, if they are going to bail on as soon as they become frustrated by an inflexible product solution that focuses too much on the tech and not enough on the customer experience.

Have you ever used an app that was difficult to follow, took more steps than necessary to authenticate identity and still failed at the last step? This is where we encounter the term ‘dropouts’ and it’s considered one the largest headaches customers can face during customer onboarding.  Compared to national banks or government ID schemes, where security and compliance remain the top priority, the sharing economy only succeeds when conversion and simplicity work side-by-side with the right technical solution.

Can we help?

PXL Vision is the Swiss market leader for a highly secure and fully automated AI-based identity verification solution. PXL Vision’s uniquely flexible technology supports any customer requirement and business process worldwide.  Our technology is market-proven and trusted across industries, including Swiss ID, which provides a simple and secure login for a number of prominent services across Switzerland.

To help you get started with your identity verification needs, get in touch with us today and we can help you evaluate the best solution for your business’s needs.

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