The Hidden Damage Done By Fake Accounts

Fake accounts can do more damage than you think. When companies like Snapchat and Instagram receive multi-billion-dollar valuations, one question inevitably arises: why? After all, they aren’t profitable; in fact, they may not even generate much revenue yet.

However, what many casual observers overlook is that the true value of many popular online platforms – particularly new business models such as communities, social networks, and peer-to-peer marketplaces – is in their users. The potential to monetize an engaged user base is what drives these businesses to focus so heavily on increasing quality signups, and keeping these new users coming back again and again and again.

But all users are not created equal, and should not be valued equally. What happens when a large portion of the “users” on your site are actually phony?

The business consequences of fake accounts

Devalued user base

If you are monetizing your user base in any way, fake users reduce this value. For example, if you charge users for the privilege of messaging 100,000 business leads – and 20,000 of those are fake – the total value of what you’re offering is lessened. It could even become an existential problem for your business.

Wasted money

When a portion of marketing spend is earmarked for growth, fake users dilute the value you get from that investment. No one wants to pay for non-quality leads that will never visit your site again; signups aren’t worth anything unless they’re going to be active and engaged. Fake accounts drive your cost per acquisition higher.

Reputation damage

Any time a user is expecting to interact with a real person on your site – and they encounter a fake account instead – it harms your reputation. Users don’t want to congregate where there’s spam, and if they’re the victim of a scam, the consequences are even worse. You are likely to lose that user – and their friends – for good.

Compliance / legal problems

If there’s shady behavior on your site, you could face compliance or even legal issues. These could range from copyright problems over scraped images used on fake profiles or listings, to criminal problems when someone uses a site to sell drugs, weapons, or other illegal goods.

Why fake accounts are so appealing to fraudsters

Friction-free signup forms

For many online businesses, user growth serves as such a crucial metric for a platform’s value and sustainability. As a result, there has been a distinct trend toward creating interfaces that make it as easy, smooth, and frictionless as possible for new users to sign up. In practice, that means asking the bare minimum of information – like only an email address – and removing any additional or cumbersome security checks that may have once been standard, like confirmation emails.

Cheap and easy to create at scale

When you consider how little effort it takes to sign up for a new account, and how little oversight is given to the process, it’s no wonder this is an appealing path for fraudsters. Fake accounts are low-hanging fruit. It’s cheap to create many at once, and requires much less investment of time or money than a high-touch crime like account takeover or phishing. Just like any business, fraudsters measure their ROI – and fake accounts offer an easy entry path to what could turn into more lucrative fraud.

Less policing than other types of fraud

Unlike payment fraud and the tangible financial sting that accompanies it, not all businesses that suffer from fake accounts may be focused on solving the problem. Often, this is because they aren’t seriously considering or quantitatively measuring the negative effect that these accounts have on their businesses.

Additionally, not every online business may even be aware of all of the fake signups on their platform. Often, it’s easy for a malicious user to fly under the radar, creating a bunch of fake accounts all at once, and then letting those sleeper accounts lie dormant until they’re ready to use them.

How fraudsters create fake accounts

Since nearly all websites and apps require an email address to create an account, the genesis of many fake accounts is a disposable email domain. There are a number of services that provide fraudsters with a temporary email address and even allow them to confirm the email. With a thriving market for people who offer to create multiple fake accounts on someone else’s behalf to spam, write fake reviews, or create SEO links, there’s no shortage of interest.

More than other types of fraud, the creation of fake accounts lends itself to automation. Fraudsters can write scripts to create as many as 100 accounts a minute, or easily buy such scripts on the black market. A quick search yields software that fraudsters can use to create fake social media profiles for as low as $50. These tools use private proxies, randomize page load time, scrape images and data from other profiles, and employ related tactics that make it easy for fraudsters to quickly have a large impact. As much as 29% of all internet traffic is from so-called “bad bots” (including spam bots).

***

It’s clear that fake accounts can be a problem. So, how can you combat phony signups on your site? We’ll give you a step-by-step game plan next week. In the meantime, check out our post on why fraudsters create fake accounts. Or contact us to find out more about how Sift Science can help.