ARTICLE ARCHIVES E-Merchants: Beware Of Online Crooks.
Lured by the success of Internet superstar Amazon.com, many first-time entrepreneurs are jumping onto the e-commerce bandwagon with little knowledge of the risks involved in doing business online. The same convenience of making purchases online with a credit card is making it easier for crooks to take advantage of the kinks in payment systems.
Stolen credit card numbers are routinely posted and swapped on Net bulletin boards and Internet Relay Chat, a real-time chat network. The card numbers can come from traditional offline sources as well as poorly secured Web servers that store credit card information. There are also programs like CreditMaster that uses the Mod-10 algorithm to generate valid credit card numbers. These numbers are good enough to fool a simple authorization check.
The severity of credit card frauds is best illustrated with a recent report on retailer Mohamed Mustafa & Samsuddin in The Straits Times. In just a few short months, credit card frauds have turned the company's lucrative online business into a loss-making entity.
"As a result, it has stopped accepting online payment by credit card on its mustafa.com.sg website, effectively causing sales to drop to a mere few thousand dollars a month," down from its previous high of $1 million in monthly sales.
The fraud problem plaguing Mustafa.com.sg is rampant in cyberspace. According to industry sources, fraudulent transactions account for about 10 percent of Net retailers' total sales, many times more than the less than 0.5 percent recorded for bricks and mortar retailers. For sites that sell digital goods like software, fraud accounts for nearly 30 percent of total sales.
The reason is that in face-to-face transactions, payment to the company is guaranteed so long as the signature matches. This is not the case in online payments. If a client denies having used his card to make the purchases, the bank takes the money back from the e-merchant. The goods - which would have been shipped out - cannot be recovered, as the guilty parties are often untraceable.
Even authorizations that check addresses are no protection against fraud originating overseas. There is no way you can validate each and every one of the addresses. Fraud is rampant in places like Eastern Europe - particularly in Romania - where the technology infrastructure is fairly advanced, but the laws governing electronic transactions are not.
This certainly poses a serious problem for a global e-commerce network. Should we then follow Mustafa's footstep in stopping the auto payment system and risk losing the bulk of our businesses? Certainly not! Internet fraud risk, like any other business risks, can be effectively managed through the use of systems designed specifically for that purpose.
ClickItPro's built-in fraud screening system is one of them. It will track all orders and post relevant data of fraudulent transactions to a central database. These data will be used to screen all orders processed by merchants using the ClickItPro's e-commerce solution.
The screening will also evaluate additional factors such as billing address and credit card's issuing country to determine the risk level. It will then issue a warning: "This order is a suspect. Please check carefully!" if there is any doubt with the transaction. It will also return the IP Address of the computer or ISP used to access your store. This will give you a fairly good idea of the customer's actual location as compared to that stated in his billing address - a key factor used to identify potential fraud.
Nevertheless, no fraud-screening system is 100 per cent foolproof. If possible, you should restrict your business to serve only the immediate neighborhoods. You should only expand it gradually to cover the neighboring regions when you have the profitability and logistics to support such an operation. The best e-business model is one involving a click-and-mortar operation where e-commerce is used as an alternative channel, just like mail, fax and phone orders, to supplement the physical store's business.
International shipping should be avoided, as it makes no economical sense to pay costly shipping and handling charges to ship a gift across the globe from say, the United States to somewhere in Asia. It may also lead to more fraudulent transactions, as it is very difficult to verify an overseas customer's identity and address.
