Credit card fraud: are you protecting your business?

With Credit Card Fraud averaging almost 5 percent of sales, if you are selling goods or services online via credit cards this is information you need in order for your business to survive.

Internet sales are different from those made in retail establishments in that there is no signed sales signed sales receipt supporting the sale. Every merchant must sign paperwork agreeing to be held responsible for all sales where there is no signed receipt. Everyone must agree in order to obtain any merchant account. The same condition applies to every third party credit card processing companies like PayPal, iBill, and ClickBank.

Credit card fraud is not really an issue for online buyers. Cardholders are never held responsible for more than $50, and neither is the institution that issued the credit card. The responsibility for credit card fraud is placed entirely on the merchant.

Whenever there is a CLAIM of credit card fraud, the processor automatically deducts the entire sale amount from the merchant's bank account and returns it to the cardholder BEFORE ANY investigation takes place.

Almost all processors also charge the merchant a CHARGE BACK fee. My fee is $40 per transaction. This fee is charged against the merchant in order to process the customer's chargeback request. The merchant never gets this money returned for any reason.

To avoid paying for an online purchase all one has to do is call their card issuing company and contest the sale - for any reason whatsoever.

My business offers a 100% no questions asked refund for any reason whatsoever to anyone that requests it. A generous return policy doesn't prevent the chargeback fee I am charged the $40 against my account on ANY contested sale for ANY reason just like everyone else.

Chargeback fees on Internet sales have become a SERIOUS problem for merchants, AND a SERIOUS source of income for the card issuing companies. They have ZERO financial incentive hold themselves responsible.

A No Win Scenario - A True Story

A company received an order for $30, which was shipped to the cardholder's address. Delivery was confirmed with a US Postal Priority Mail tracking number.

Later the customer called his card issuing company claiming to not have ordered the item. A chargeback was issued and the cost of the merchandise shipped $30 and a $40 chargeback fee was deducted from the merchant's bank account.

The merchant replied to the chargeback sending proof that the telephone number belonged to the cardholder, the cardholder lived at the billing address listed on the credit card receipt, and the merchandise was delivered to the cardholder's address.

The credit card company ruled that it was a fraudulent transaction against the merchant even though it was the first contested charge in four years, and the merchant had no other customer complaints. The only reason given was the merchant did not obtain the customer's signature at the time of purchase. The merchant was provided no paperwork other than a debit to their bank account.

The Merchant's Losses Total $95

The merchandise valued at $20 The $30 charged the customer for the merchandise The $5 delivery and delivery confirmation costs The $40 chargeback fee

It cost the merchant $95 to sell a product with a $5 net profit. With credit card fraud running at 5%, one bad sale of 20 and this merchant is loosing money. It's a wonder anyone can make a profit against these odds.

By placing all responsibility for fraud on the merchant the card issuing companies are forcing you to pay higher prices for goods and services you purchase online.

How Easy Is It To Commit Fraud?

It's easier than you might think, but people get caught all the time. Merchants are becoming more and more willing to do whatever it takes to identify and prosecute fraudsters and are usually successful.

1. Work for a company that accepts credit cards online. You then have access to thousands of numbers. 2. Hack a company that accepts cards. This requires skill, but can be done if you know how. 3. Buy them; you can do this legally in California and some 4. Buy them on the Internet from other carders/fraudsters 5. Work in an places that accept cards and copy receipts 6. Go dumpster diving or trashing 7. Put up a Junk porn site, to collect credit card details. 8. Generate the cards using card generators 9. Use you're own, your family or friends cards, dispute the charges.

Possible Solutions to Limiting Fraud

Running real-time transaction processing, address verification, and requiring the Credit Card Verification number will insure that the user actually has possession of a valid credit card and not just a valid credit card number; this alone will stop 80% of all fraudulent sales. Almost all credit card processors offer these services, usually for no additional charge.

Shipping only to the billing address of the cardholder will stop the use of most stolen credit cards but may cost merchant's sales where the purchase is a gift or where the cardholder's billing address and residence address are different.

Accepting checks and money orders are safer options for the merchant since writing a bad check is a more easily enforceable crime, but since the buyer has little or no recourse, checks are not the best choices for you and I as customers.

Geographic monitoring of International orders can help. Investigating International orders more carefully or not accepting International credit cards is an option, especially where the cost of the shipped merchandise is high.

Most fraudulent orders are International and most from the following countries.

1. Ukraine 2. Indonesia 3. Yugoslavia 4. Lithuania 5. Egypt 6. Romania 7. Bulgaria 8. Turkey 9. Russia 10. Pakistan 11. Malaysia 12. Israel

Credit card processing companies are implementing better fraud screening systems, which are great for merchants shipping high cost or low profit products. These systems add cost to each sale out of reach to most small merchants needing them the most.

Digital signatures are still new to the Internet and at this time there is no clear accepted standard that is accepted by card issuing banks.

This is a rapidly technology race between the scammers, and the credit card processing companies each trying to get one step ahead of the other. Until changes are implemented the merchant is going to be taking all the losses.

More Information

2001 Fraud Report >> http://www.merchant911.org/report.pdf

Card verification >> http://www.paytech.ru/eng/cvc2.asp

Fraud Prevention For Merchants >> http://www.merchant911.org/OWL1.html >> http://www.merchant911.org/OWL2.html

An Ever-Growing Technology Arsenal >> http://www.internetretailer.com/article.asp?id=5848

Your Paypal account can be frozen at any time >> http://www.paypalwarning.com/Default.htm

Web Scams Top Consumer Complaints

ROBERT SMITH helps thousands successfully market their Internet based home business. You'll find tons of free marketing tools & resources on his Internet Marketing web site at: <http://www.smithfam.com/>.

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You can reach him by phone at: (541) 689-1847 PST, and by email at. <mailto:bob@smithfam.com>

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