Credit Cards Online Information

Don't let fraudulent credit card orders knock you out.

You thought a hearty "Congratulations!" would be in order. Your online business was still-in its first week and had already received a whopping $5,000 order. There was just one catch--it had been placed with a stolen credit card number.

The tip-off came when you saw that the order, ostensibly placed by a credit card holder with a U.S. billing address, was to be shipped to faraway Indonesia. A quick phone call to the real card holder, who told you she didn't have the foggiest idea about the order, confirmed your suspicion.

Sometimes, sniffing out fraudulent transactions can be a matter of common sense. While online fraud tactics are becoming increasingly sophisticated, preventing credit card fraud doesn't have to require expensive monitoring tools. Much of fraud prevention lies in knowing how fraud works.

Take, for example, this loophole in shipping companies' customer service policies: Any allegedly legitimate buyer can ask his merchant for the tracking number of his shipped order; the customer can then call the shipping company with the number and change the shipping address. This allows a person with a fraudulent credit card to clear a merchant's antifraud Address Verification System (AVS), which ensures that the customer's credit card billing and shipping information match bank records and each other. After having his or her order approved, any poseur can obtain his or her package's tracking number and change the original delivery address to his or her own.

Developing a policy of withholding the tracking numbers of overnight packages until delivery time has passed can serve as a simple but effective part of your strategy against electronic credit card fraud.

RISKY BUSINESS

Online merchants take on much higher risk than their brick-and-mortar counterparts: Nearly 10 percent of all Internet transactions are fraudulent, compared to less than 1 percent of credit card transactions in the physical world, according to a 1999 report by Meridien Research. (The company does, however, expect Internet fraud to drop to below 5 percent in its 2000 report.)

Internet merchants also assume higher penalties for credit card purchases than do physical stores, paying as much as 2.69 percent and 30 cents (compared to 1.5 percent and 20 cents) on every Net-based transaction.

Why are online fraud rates so high? Unlike face-to-face transactions, where a signed receipt serves as a contract protecting the merchant against identity fraud, transactions made over the phone or online do not guarantee the card user's identity. This means anyone with access to old credit card receipts or illegal software that generates authentic credit card numbers can attempt to use those numbers to buy online. Even worse, the merchant must assume all the risk in such non-face-to-face transactions.

Julie Ferguson, co-founder and vice president of emerging technologies for e-commerce software company ClearCommerce in Austin, Texas, and founding member and board member for the newly launched nonprofit Worldwide E-Commerce Fraud Prevention Network, says the total costs of e-fraud add up to far more than just the cost of goods sold. In fact, merchants are fined for chargebacks, or reversals, against disputed credit card sales. E-fraud costs thus include the cost of the order, bank and card processor fees (including higher discount rates, chargeback fees, fines and even termination of processor service for excessive chargebacks), the expense of manually resolving bad transactions and the decline in customer loyalty.

ANTI-FRAUD MEASURES

You can fight back against online credit card fraud by investing in fraud-detection software, either separately or as part of your credit card processing service. So-called store-in-a-box solutions can provide a generally easy and inexpensive system for processing credit cards, including pre-authorization with Visa and Mastercard. (For more on stores-in-a-box, see "Bizstartups.com" on page 122.)

If the anti-fraud tools that come bundled with your e-commerce solution provider or your credit card processing service aren't as robust as you want, however, you can invest in separate anti-fraud software and integrate it with your payment-processing service. These tools typically include realtime authorization capabilities to ensure the card number and expiration date are valid and customer funds are sufficient. Within the United States, tools also include AVSes. More advanced anti-fraud tools incorporate rules systems that are able to flag certain types of transactions based on customizable if/then statements (such as "IF the order is above $1,000 AND the shipping is express THEN review the order") and statistical models that learn by example and correlate transaction attributes with known fraudulent activity.

# posted by Medical Information : 10:08 PM