E-traders combat Net fraud

Credit card fraud is a problem for most Internet retailers, according to the results of a recent survey by information services company Experian.

Experian reports that 97 percent of Internet merchants have been victims of online fraud. Retailers are often unaware of any problems until long after the frauds have happened, leaving them vulnerable to repeat attacks from the same fraudsters.

Experian's research shows that in just under half of all cases, fraudsters use the same site more than once before being detected. It took four weeks or more for retailers to be notified of online fraud by the credit card issuers for almost half of all incidents.

The levels of online fraud indicated by the Experian research show the true extent of the problem, said Barry Shrier, vice president of sales and marketing at mobile payment specialist Paybox UK. "It is not at all a surprise as it is so easy to commit credit card fraud online. It all revolves around the cardholder-not-present scenario," he added.

The high levels of online fraud are forcing certain Internet merchants to alter their payment systems to reduce the risks. Online electronics and computer software retailer Dabs.com recently announced it would no longer accept certain types of payment. A notice on its Web site said, "We are experiencing unacceptable levels of fraudulent transactions on Switch and Solo debit cards. We have decided not to accept payment by Switch or Solo debit cards until further notice, unless you are paying in person at our counter collections desk."

A number of measures have been developed to reduce the risk of fraud. These efforts are usually designed to protect merchants against cardholder-not-present fraud, for which they would be liable for chargebacks.

One option for Internet retailers is to purchase software from payment solutions firms such as ClearCommerce or CyberSource. Their products check information such as addresses, the location of buyers and bad credit card numbers. These systems assess each transaction before it is processed, and provide the merchant with a score indicating the risk attached to accepting the transaction.

Credit card issuers are also taking steps to reduce online fraud. Visa has introduced a service that authenticates user identity before each transaction is processed. When a Visa cardholder clicks on the purchase button at a participating merchant's site, the Verified by Visa service automatically creates a new window and directs the consumer to enter a password. If the password and credit card details are correct, Verified by Visa authorises the payment and notifies the merchant. Participating retailers are no longer liable for the costs of online fraud, because Visa covers any chargeback costs. MasterCard offers a similar service with its Secure Payment Application.

Dabs.com said such systems have cut fraud on its site, and it continues to accept Visa and MasterCard payments online because of the new security measures.

Experian spokesman Bruno Rost said the evidence shows it is vital for online retailers to combat online fraud. Firms that fail to protect themselves are likely to face higher costs, and are likely to lose customers to rival sites that offer better security. "Fraud could severely inhibit the growth of e-commerce," he added.

Customers are not the only parties putting pressure on Internet retailers to improve protection, said Rost. "The credit card issuers are getting much tougher on retailers to combat fraud - for example a merchant's licence [to accept certain types of card] could be withdrawn," said Rost.

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