Shoplifting on the Web

Credit card fraud is definitely on the rise, especially when credit card thieves "test" a stolen card by running it through an Internet merchant's credit card technology. 

When they find a card that "works" on the web, they know that the card is "safe" and it can then be redistributed. Once a card is known to be safe, the thieves typically make as many purchases as possible before the owner reports the card. Electronics, computers and jewelry are the products most commonly targeted, but no merchant is safe. 

The bad news for webmasters is that banks will usually discontinue any Internet Merchant Account that they determine is being used for testing stolen cards. 

In the case of digital goods, a disappointingly high number of consumers are practicing "Internet shoplifting." 

The process is simple enough.  Customers can contact their credit card company and request a refund, claiming that they did not make the purchase, or that the product was not delivered or was unsatisfactory. 

Since digital goods cannot be returned, the customer can download the merchandise then request a refund from the merchant or a charge back from the credit card company. 

In a situation where the goods have been ordered via mail order (or over the Internet), the law protects the customer for a period of 30 days. Requests for a refund during this time will usually be honored. 

Merchants, even perfectly legitimate merchants, who attract too many charge backs are in danger of having their merchant account discontinued.

Between a Rock 
and a Hard Place

If you are selling something from your web site, the single most important service you must offer is to accept credit card transactions. In the 18 months that I have been selling products online, 90% of my sales come through credit card transaction, although I offer two alternative payment methods.

To accept credit cards transactions, you must have a special arrangement with your bank called a Merchant Account. To qualify for a Merchant Account, you must demonstrate that your business has had an extended period of financial stability. Expect to present your business plan, your financial statements and various other documents. If you meet the stringent requirements, you may be asked to put up several thousand dollars as a safeguard against charge backs or credit card fraud. You may also be asked to pay for the software or terminals that you will use.

Standard Merchant Accounts require you to process transactions manually, using the terminal or software and the credit card information that has been given in person, by phone, mail or over a secure Internet line.

With an Internet Merchant Account, the transaction is processed online, in real time while the customer waits. The technology automatically checks the name and other contact information given for the credit card, ascertains that the card has not been reported lost or stolen, and determines that the card has not expired or exceeded its limits.

If the card is accepted, the sale is processed and both merchant and customer receive notification so product delivery can occur. 

With an Internet Merchant Account, the merchant does not need a terminal or software, since all transactions are processed by online technology. The merchant must have access to a secure line to protect the privacy and confidential information.

Internet Merchant Accounts are even more difficult to set up through a bank, since the risk of charge backs and fraud are higher.

The bottom line is that banks are unwilling to take on those risks unless they are sure of your stability and unless you can put up a lump sum to be used as a safeguard against fraud and charge backs. There are risks inherent in accepting credit card transactions over the Net, and you, the merchant are the one who will assume most of those risks.

Despite the problems and the risks, ecom is here and many merchants, large and small are profiting from this new method of sales. Merchants who understand the risks, exercise common sense and provide good customer service can succeed. A future article will discuss Reseller Services -- an affordable alternative for entrepreneurs who can't arrange a merchant account through their own bank.

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