Online Credit Card Use Draws Blood

Online Credit Card Use Draws Blood

Sydney Morning Herald
8 August 2000
Dorothy Kennedy

Cyberspace security fails to eliminate the bugs, writes Dorothy Kennedy.

A dark corner of the e-tailing world attracted some light last month when US IT industry researcher Gartner confirmed what online businesses have suspected for some time that credit card transactions cost merchants more when they happen to take place over the Internet.

According to Gartner, credit card discount rates are, on average, 66 per cent higher for online merchants than they are for traditional retailers. An average rate of 2.5 per cent, plus 30 cents per transaction, applies to e-tailers, against 1.5 per cent plus 30 cents for traditional retailers.

Gartner reported that 12 times more fraud takes place on Internet transactions than in the real world, and Web merchants are wearing the associated costs and liability.

Joe Sweeney, Gartner's research director and e-commerce trouble-shooter for the Pacific region, says credit card companies are threatening to penalise merchants who issue too many "charge-backs" on fraudulent transactions.

"What they have just introduced what I would consider draconian measures to try and stop charge-backs what they're saying to merchants or settlement companies that have high rates of charge-back, is quite frankly, we're going to hit you with a fine."

According to Sweeney, the fines proposed by Visa Card range from $5,000 up to $100,000, and would kick in on a sliding scale once a merchant tries to charge back more than 1 per cent of online transactions. Visa chose not to comment on this claim.

"I think credit card companies are in a very unenviable situation," Sweeney says, "because it's not actually their online security that is weak, it's offline security." In other words, a lot of the fraudulent credit card details that make their way into cyberspace are pilfered from real-world credit card receipts, and then transferred online. It then becomes almost impossible to tell whether or not a customer is who they say they are. "That's got the credit card companies a bit stuck," Sweeney reckons.

However, John Verco, senior vice-president of MasterCard, Australia and New Zealand, questions the rate of Internet credit card fraud claimed by the Gartner survey. "This comment about 12 times more [fraud] on the Internet, I don't know where they get that number. It's too early to tell that at all," he says. "I would suggest that numbers we've seen so far don't indicate that, so we may have a disagreement there."

Whatever the truth and one industry survey is clearly not enough to put a complex issue like this to sleep online merchants are seeing red.

Reportedly, some of them are collaborating directly with big American settlement companies in a bid to build their own security systems; this includes shared lists of "bad" cards. Stay tuned.

dorothy-kennedy@hotmail.com

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