The number one way online merchants are impacted by fraud is via the credit card and bank account charge-back. This takes place when a buyer asks for a charge to be removed from their account due to one of two reasons:
1. Their card was stolen or used without their permission.
2. The customer isn’t happy with the quality of the goods you shipped, or feels you did not live up to your obligations in delivering the product or service.
Unfortunately, the occurrence of charge-backs is at an all time high and shows no sign of letting up. Where the life blood of an online business is their payment system which almost always involves accepting credit or debit cards, this problem has the potential to ruin a business in relatively short order. To be sure, there are honest people who use this process because of legitimate reasons. However, there are also many who use this process to scam business owners out of money that is rightfully theirs. When a charge-back takes place, it’s quite possible that the merchant won’t even get their merchandise back, so not only is the merchant out the money they were paid for a product, but they no longer have the product either!
According to a report by Merchant 911, over 90 million credit cards were stolen in 2007. 90 million! This resulted in nearly 4 billion dollar loss for e-commerce businesses. Online businesses don’t have the ability to verify or authenticate a cardholder’s identity, so they are far more susceptible to problems with charge-backs. As mentioned earlier, you’ve got the issue of the lost money from the sale, the lost merchandise, the lost fees your processor charges you for the transaction as well as the charge back and any shipping costs that you’ve incurred to get the product to the customer. While this all sounds pretty bleak, there are a number of basic security strategies that you and your employees can employ to cut down on this most troubling of issues.