Get What’s Coming to You
For catalogers, payment fraud accounts for a high cost of doing business. On the Internet alone, estimates are that losses from payment fraud exceeded $1.6 billion in 2003.
For direct-response merchants, credit card fraud losses averaged 1 percent of orders in 2003, which may not sound exorbitant, but in terms of total sales, the costs are huge. The good news is that online fraud losses declined from 2.9 percent of total online revenues in 2002 to 1.7 percent in 2003, according to Cybersource Corp./Mindwave Research.
The cost to your customers also is high, because for every fraudulent order, merchants reject another three or four based on their suspicion that the order may be bogus. So in reality, the true cost of fraud is equal to the amount of direct fraud your business experiences, plus the number of good orders that were rejected due to suspicion, and the costs associated with fraud management (e.g., manual review time, training time, chargeback fees).
And because during a telephone order or online transaction the customer’s card is not visible to the merchant, those types of payments continue to be a higher-risk proposition than for traditional brick and mortar merchants.
Following are best practices we encourage merchants to incorporate into their business processes to reduce their risk of payment fraud.
Know Thy Enemy
The face of a fraudster takes many forms and is not defined by socioeconomic boundaries. In some cases, it may be a teen shopping with a stolen or borrowed credit card trying to beat the system, or a shopper of any age who resolves his or her buyer’s remorse by disputing the charge.
The more devious types of fraudsters are those targeting specific merchants or offshore professionals attempting to make purchases in the United States.
Then there’s the “credit master,” someone who uses software that actually generates credit card numbers. At some point, these individuals get lucky with a real number.