Payment card fraud is spinning out of control, leaving many
retailers struggling to stem the tide of fraudulent transactions. The latest
figures from the UK show that in the past year, payment card fraud cost the
country A$1.1 billion compared with A$820 million the previous year, a jump of
36 per cent. Detailed figures for credit card fraud in Australia are not so
readily available but the indications are that it is following the same trends
experienced in the UK and the US.
The reason behind the escalation in credit card fraud has been the massive
increase in the number of online transactions expected to rise to A$600 billion
by 2005. US figures show online retailers suffered more than A$460 million worth
of credit card fraud in 1999. In the UK, online fraud topped A$22 million in the
past year, a jump of more than 60 per cent on the previous year, according to
Interactive Advertising Board figures.
The significant increase in Card-not-present (CNP) transactions which includes
the Internet, telephone and mail order purchases has opened up a whole new world
of opportunity for the criminally minded. The speed with which the Internet has
developed has outpaced the development of the necessary security measures
leaving fraudsters in a new market, which has few of the traditional legal and
structural defenses to prevent this 21st century crime wave.
Unlike normal face-to-face retail transactions, where the card issuer (such as
Visa or American Express) carries most of the liability, in CNP transactions,
liability for fraud losses or charging disputes rests wholly with the retailer
or merchant. Many pioneering e-commerce entrepreneurs have been caught unaware
and unprepared for this as, unlike the banks, they have little or no established
risk management capability in-house. Australian e-commerce has already suffered
a number of casualties most notably Harvey Norman who was forced to temporarily
close its computer retail site after it found more than 25 per cent of attempted
credit card transactions were fraudulent. (Sydney Morning Herald 6/12/00). There
are many more similar incidents, however, retailers are understandably reluctant
to come forward aware of the damage association with fraud can do to their
A recent Gartner survey found that credit card fraud is at least 10 times higher
than it is in the physical world and that fraud is the number one concern
e-tailers have concerning their on-line payment systems. Yet, so far, only 40%
of surveyed e-tailers are taking meaningful steps to protect themselves from
fraudulent buyers who use stolen credit cards.
Meridien Research puts e-fraud as high as 10 per cent of all transactions in
terms of value, while other research from Mindwave places e-fraud at 4-5 per
cent of transactions by volume. On an individual basis, companies have reported
figures as high as 30% of all their Internet transactions to be fraudulent.
"The Internet is the fastest growing retail channel and Internet credit card
fraud is the fastest growing criminal activity. Unfortunately for the retail
sector, retailers are liable for card fraud losses over the Internet," Robert
Hillan, Managing Director of risk management company Retail Decisions Australia,
Retail Decisions ("ReD") has for the past 15 years on behalf of hundreds of
clients worldwide been working to reduce the risk of payment card fraud. In
2000, ReD extended its global network by establishing an Australian head office
in Melbourne to manage the development of ReD's services in Australia and Asia.
In 2000, ReD screened 1.25 billion credit card transactions, preventing 210,000
fraudulent transactions, estimated to be worth about $190 million. Ten years in
high speed, high volume electronic payment authorisations, and one of the
world's largest fraud databases supports ReD's risk management services for
e-commerce and other "CNP" transactions with the most up-to-date fraud detection
Taking advantage of this technology is a host of blue chip clients including:
AT&T, BT Cellnet, Datacash, Tesco, Argos, X.Com Paypal, Isolve.Com, Snet, Asda
and IPC Media.
"Retailers' total fraud liability is not limited to the loss of product and
revenue, but can be compounded by costly fees and fines charged by card
associations. These charges can multiply so quickly that they can potentially
cost a retailer their business," Mr Hillan said.
The growth of payment card use, e-commerce and CNP transactions coupled with
more traditional forms of card fraud means the business of combating retail
sector fraud has never been more important.
"Payment card fraud is escalating rapidly, especially in the relatively
unprotected areas of e-commerce and other CNP environments," Mr Hillan said.
" Individual businesses have lost as much as 30% of their sales due to
fraudulent transactions and perhaps even more by rejecting hundreds of otherwise
legitimate customers. However, with the right tools and technology fraud can be
An increasing number of prominent online retailers are turning to ReD to protect
against payment card fraud. ReD uses its advanced technology to maximise the
number of good credit card transactions, cut the number of charge backs, and
most importantly, not reject otherwise good customers along the way.
ReD's capabilities are strongly geared around real-time analytical processing,
designed to warn merchants to challenge or reject suspect transactions. ReD
utilises an array of technologies, including neural network velocity rule sets
and propriety fraud screening databases in the fight against payment card fraud.
However, just using the very best technology is not a magic bullet - a
proactive, intelligence-led approach is needed. And because ReD understands
this, it does not just detect fraud, but predicts and prevents it too.
The company's core product - ebitGuard - is designed to control the burgeoning
number of fraudulent and disputed transactions in CNP environments.
Specifically, it will maximise retailers' good CNP sales and customer service
and buying experience and minimise their customer dissatisfaction and insult
rate, and their losses, chargebacks, related surcharges and fines. It also
allows retailers to avoid the possibility of losing their right to accept
The service is made up of a comprehensive set of proven tools that can be
configured to deliver the optimal level of transaction risk protection - cost
efficiently - while providing a seamless customer buying experience. Services
are individually customised to the retailer's risk levels and current chargeback
rates. The real-time, dynamic, multi-tiered and flexible system gives the
retailer a clear decision on a transaction's risk assessment.
"Our experience indicates that we can reduce CNP fraud to below one per cent of
gross sales with a corresponding reduction in charge backs. Using ReD is not
just a question of consumer confidence - it is about safeguarding business," Mr
The bankcard associations, such as Visa and Master Card, have very low tolerance
of fraud in CNP retail (and especially e-commerce). If a merchant's losses
exceed 1% of value for more than 2 months then charges and crippling weekly
fines (starting at $10,000) are levied. Eventually, if not brought under the 1%
ceiling, the right to accept payment cards will be removed from the merchant. In
consumer e-commerce, this effectively puts the merchant out of business as
payment cards represent +90% of transactions.
According to Mr Hillan, retailers and e-commerce merchants have so much to lose,
including their businesses, by allowing credit card fraud levels to spiral out
of control. "The do-it-yourself option could be costing a lot more than you
think. Why risk your business? The best approach to keeping payment card fraud
under control is to implement an expert, automated, balanced fraud monitoring or
screening capability," he said.
Awareness of the threat posed by credit card fraud is lower here in Australia
than abroad. Analysis, statistics and investigations in the UK and the US has
led to a much better understanding of the problem and as result e-tailers abroad
are responding by better safeguarding their businesses. There is a real danger
of Australian e-commerce being left behind due to not having fully focused on
the increase credit card fraud.
Company's like ReD with extensive experience of checking credit card fraud are
here to ensure that Australian e-commerce is allowed to flourish
Article used with permission