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Beginners' Guide to E-Commerce
Ecommerce: The Dark Side
Credit Card Fraud
When a valid credit card falls into the hands of fraud artists,
the thieves typically purchase as much as they can before the owner
reports the theft. The most likely items to be purchased are those
that can quickly be converted to cash -- electronics, computers
or jewelry. Merchants selling those items online will be particularly
vulnerable to fraudulent attempts.
Credit card fraud artists also "test" cards in an effort
to learn whether the card is valid. If your web site becomes known
as a good "test site," you will be in danger of having
your merchant status revoked. This is one of the reasons why you
want to ensure that you card processor is using top notch security
technology.
Internet Shoplifting
Many Internet merchants are dismayed to learn that their biggest
challenge comes from dishonest customers and not credit card fraud.
It goes like this: In many countries (including Canada and the US),
Internet sales are governed by the same laws as Mail Order Sales.
With both Internet and Mail order sales, the customer is not present
at the point of purchase (POP). Therefore, there is no signature
given to indicate that delivery occurred. Customers can contest
a sale within 30 days of purchase, stating that the item was not
delivered as promised, that the item did not meet expectations or
that the transaction was the result of a lost or stolen credit card.
In all cases, the merchant is offered an opportunity to contest
the chargeback. However, without a signature to indicate delivery,
there is often little that the merchant can do.
While these policies are intended to protect consumers from dishonest
and unethical merchants, unfortunately they do not protect honest
merchants from unethical consumers.
All too many consumers are aware of this and use it to their advantage.
The strategy is simply to order an item on the Internet then contest
the charge or ask the merchant to issue a refund. The merchant has
little option but to comply.
Merchant issued refunds are preferable, since the fee for this transaction
is usually only a few dollars instead of the many dollars that a
chargeback will cost. However, if the item sold was hard goods (i.e.
a physical item like a book or a computer), the merchant will lose
the cost of the item plus the cost of shipping. If proof of delivery
is available, a merchant might succeed in getting the consumer to
return the item -- but will it be in good enough condition to resell?
If the consumer lives in a different country than the merchant,
it can be next to impossible to get an item returned.
If the item sold is soft goods (i.e. electronic files, software,
and ebooks), the merchant cannot request the return of the item,
since digital goods can be replicated. At least with soft goods
shoplifting, you are not out the cost of mailing or the price of
the product.
Piracy
If you are selling soft goods, piracy is a problem. Since digital
files can be replicated readily, there is little to stop a consumer
from purchasing your product with a credit card, asking for a refund
or chargeback, then distributing the file to other people. Some
sell it to others claiming the product to be their own.
Technologies are coming available that will prevent or at least
make piracy more difficult. However, at this time, many of these
technologies are beyond the budget of the small or home business.
Tips for Protecting Yourself Against Online
Credit Card Fraud
Please don't be deterred by the hazards mentioned above. Take proper
precautions and you will find that the majority of your transactions
are successful.
1. If you are doing real-time processing, ensure
that your technology is up to date and equipped to recognize fraudulent
attempts. If you are using a card processing company, ask about
their record of fraud deterrence and the security technology they
are using.
2. Insist on the buyer's mailing address, zip code
and phone number. Check this out before processing orders of hard
goods or orders of significant cost. If you cannot locate a customer
with the information given, delay processing the order until you
can.
3. Say "no" to requests to process transactions
for another entrepreneur who does not have a merchant account. You
will be responsible for chargebacks stemming from sales generated
by the other person. Similarly, avoid customers with letters giving
"permission" to use someone else's credit card.
4. Decide whether you want to ship orders overseas
or to countries other than your own. Many merchants find that it
is difficult to pursue claims for items sent to other countries.
Eastern Europe is regarded as being a particularly high risk area.
5. Be wary of orders from free email domains like
Hotmail and others. Look for proof before shipping to consumers
with these addresses.
6. Never ship to a Mail Box Address. Insist on
a street address.
7. Be cautious of consumers who want pricey products
delivered using highcost and fast delivery methods. If the credit
card is stolen, the thief won't care about the price but wants the
merchandise as fast as possible.
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