Online Fraud Fighters
The Fraud Prevention Network discusses what merchants can to do protect themselves from fraud, which is more prevalent for online retailing. The group also discusses security measures merchants can leverage.
When it comes to online fraud, merchants are the biggest victims. Consumers may disagree because they're the ones who have to dispute charges and cancel credit cards. But ultimately, it's the merchants that pick up the tab.
Despite this liability, merchants aren't using the tools available to them to fight cybercrooks, says Julie Fergerson, chairwoman of the E-commerce Fraud Prevention Network, a nonprofit group formed 17 months ago that now has 2,000 retailer members.
Some suggestions from Fergerson: Merchants should keep a database of people who've committed fraud against them. Instead of concentrating on billing addresses and credit-card numbers as fraud flags, merchants should pay closer attention to shipping addresses and bogus E-mail addresses. They should also do a better job of tracking hackers' attributes and behavior patterns.
Typically, con artists steal credit cards outright or collect enough information about a person to get a credit report, which includes the card number. They store the numbers and then place a series of small orders, usually no more than $75; fraud often spikes as perpetrators describe their successes in E-mails and chat rooms, encouraging copycat crimes. Based on credit-card billing cycles, it can take up to 45 days before a consumer disputes a charge and a merchant learns of the mistake. By that time, the crooks have the goods.
"One of the biggest challenges for merchants is, who do I report this fraud to?" Fergerson says. Law-enforcement officials usually aren't interested unless a case involves several thousand dollars.
Retailers and other businesses will get more help beginning next month when the government's Internet Fraud Complaint Center, set up nearly two years ago to help consumers, will begin tracking grievances from companies and try to find patterns in the reports to track down the thieves, says Bob Pocica, supervisory special agent for the FBI.
Suspicion that some of their customers are cybercrooks leads large E-retailers to reject 7% of purchases, says Avivah Litan, VP and research director at Gartner, which recently surveyed 80 online merchants. Nearly 30% say risk of fraud is the biggest problem plaguing their online payment system.
Fraud also means online merchants pay higher fees for processing credit cards--about 2.5% compared with 1% to 1.5% in stores, when a card is physically present. Chargeback fees for allowing a fraudulent purchase can run from $10 to $25 on top of the transaction itself. Rack up enough of those fees and the credit-card processor will charge more for the service--which has happened to 11% of the merchants in the Gartner survey.
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