Convincing consumers that their credit card information was safe on the Web was a big step forward for e-commerce. But consumers are pretty well protected from fraud by the credit card companies: It's the merchants who are left in the lurch.
"From a consumer perspective, your chance of getting ripped off buying something on the Internet is close to zero," says Audri Lanford, co-founder of Netrageous Inc., which produces the online newsletter Internet Scambusters (www.scambusters.org), dedicated to steering e-merchants clear of scams and frauds. "The maximum liability that you have is $50 when you use a credit card. If you're a good customer, they're not even going to charge you." Merchants, on the other hand, can be held liable for all or part of the cost of the goods or services.
Last year Visa International released information indicating that e-commerce accounted for fully half of all credit card disputes and fraudulent transactions. It now denies that figure, and prefers to place the fraud rate in a larger context. According to Visa spokesperson Casey Watson, Visa's sales volume for the last four quarters has been $1.5 trillion, and only two percent was derived from Internet transactions. "Our fraud rates are less than one-tenth of one percent of our overall sales volume," Watson says.
Whether or not the Internet actually encourages more fraud, it's still a big problem. "You really can't do business on the Internet without credit cards," Lanford says. "So it's a catch-22." Companies usually move sales onto the Internet in order to increase business, but may not realize they're increasing their fraud risk, as well.
"When we started doing research on this two years ago, we were finding small businesses losing $10,000 or $15,000 a day or a week, or a month," Lanford says.
Merchants need to take steps to protect themselves. Both American Express and Visa have developed programs to teach merchants the basics of online fraud prevention. "Our job in working with merchants is to help get ahead of the curve and shore up the merchants before the fraud can take place," says American Express spokesperson Joanne Fisher. "Fraud is like any other crime. Thieves go where they see an opportunity. The Internet is a newer, less tested ground, so they're finding opportunities."
Some basic steps to stay vigilant: Require address verification through your credit card service provider, be careful when accepting orders from customers whose e-mail addresses indicate they use free e-mail services almost all fraud comes from those services, and, finally, examine closely all orders that have different credit card billing and shipping address.
If you don't protect yourself, nobody will.