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Merchants are biggest losers when
it comes to credit card fraud
Dear Small Biz Adviser:
My husband and I have just started a business that includes offering
our products for sale through our Web site. We have made two sales
this way, and have just learned that the purchases were made fraudulently.
What is OUR liability? We are out the product, and now the card
service is telling us that the money will be charged back to our
account. This can't be right! Please help!
Paula
Dear Paula:
Ever hear of Beyond.com. It began online selling in 1994 and was
founded by Bill McKiernan. His biggest problem was fraudulent card
charges. Like you, he lost his merchandise and had to cover the
fraudulent charges. That led him to launch a second company, CyberSource.
It provides online authorization services designed to end the fraud
problem. I have more to offer along the lines of payment formats,
but let us first consider the matter of the fraudulent charges for
which you are liable.
You must carefully read all the fine print regarding
merchant accounts. Compare that to the credit card consumer, and
you will find merchants are the least protected party among the
merchant, consumer and issuer of the merchant account. Don't believe
me? Read the Web Developer Journal's article Reducing
Online Credit Fraud, by Steve Patient. He has 10 tips for merchants
who accept credit cards online:
- Confirm names, mailing addresses and phone numbers
of buyers before shipping product.
- Request faxed customer signatures or faxed photocopies
of credit cards.
- Don't process the order if you can't contact the
customer by phone.
- Use address verification services.
- Be very careful with overseas shipments.
- Seek reassurance if the name on the e-mail address
does not match the name on the credit card.
- Request additional proof of identity if the order
is processed from an address at free e-mail domains.
- Confirm the geographic DNS location of the server
from which the customer's e-mail is originating, and then compare
it to the mailing address provided.
- Pay special attention to those willing to pay higher
delivery prices for quicker delivery. Frauds don't pay in the
end anyway.
- Make it a policy not to ship to P.O. boxes. That
is another easy hiding place for frauds.
In addition, you should consider developing a formal
policy, and make it easily accessible by clients to your Web site.
It may help to keep the frauds away.
Now I am going to suggest you look into some of the
following formats for online payment:
- As noted already, the CyberSource application that
provides adaptable formats to address the needs of small business
and major corporations.
- CrediView
is one of the newer competitors to CyberSource.
- PayPal
also is an excellent alternative. You pay a fee to PayPal, but
the added security is enhanced with the fact the customer also
has the option to pay with credit cards or bank accounts. PayPal
also processes overseas payments.
One last option you may want to consider in addition
to those listed above is the new storefront service eBay will be
offering this summer. They also offer a payment program called BillPoint.
Credit card fraud has been a nemesis to most online
merchants. However, I believe you have options, including establishment
and publication of more stringent credit card policies at your site.
You also could also use credit card authorization software applications,
alternatives to merchant credit card services or both.
I wish you well.
-- Posted: May 29, 2001
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