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09/07/2003
Internet fraud threatens to undermine e-commerce
The Northern Ireland Federation of Small Businesses (FSB) has warned that small firms are facing growing bills for Internet fraud that are rising so fast that it is "threatening e-commerce".
In a letter to E-Commerce Minister, Stephen Timms, the FSB explains that credit card fraud over the Internet and telephone is a particular concern to small businesses because it is the retailer rather than the issuing bank that is liable.
It is estimated that Internet fraud now costs the British economy around £28 million-a-year, compared with £3.8 million in 2000 and is acting as a disincentive to trading online, according to the FSB.
Among the businesses that have been affected by online fraud is David Barrett, director of Cybercomp which sells computer parts, who shut his website after getting stung for a £2,500 charge-back. He thought he was protected after getting authorisation for the transactions from the bank that issued the card.
FSB National Policy Chairman John Walker explains: "Businesses are confused over what authorisation means. When a transaction takes place over the Internet, credit card authorisation is not a payment guarantee, it only indicates that the card has not been reported lost or stolen and there are sufficient funds available in the cardholder account."
The FSB fears that cardholder-not-present fraud will grow as the banks focus on tackling cardholder-present fraud. It welcomes the new chip and PIN credit cards, and all retailers who use the FSB for their merchant services already have chip and PIN compatible terminals, but as John Walker says: "There is a danger that as chip and PIN takes off, fraudsters will just use the Internet instead."
Mr Walker concluded: "For the small business community to fully embrace e-commerce, we need to work towards a liability shift so that the issuing bank is liable in the event of cardholder-not-present fraud in the same way as the card issuer is liable in the event of cardholder-present fraud."
Most Internet fraud involves the use of fraudulently obtained card details to make a purchase - cardholder-not-present fraud. When this type of fraud occurs, it is the retailer rather than the issuing bank that is liable.
In practice, this means that retailers face a charge back if card details have been fraudulently obtained even if the transaction has been correctly authorised.
(SP)
In a letter to E-Commerce Minister, Stephen Timms, the FSB explains that credit card fraud over the Internet and telephone is a particular concern to small businesses because it is the retailer rather than the issuing bank that is liable.
It is estimated that Internet fraud now costs the British economy around £28 million-a-year, compared with £3.8 million in 2000 and is acting as a disincentive to trading online, according to the FSB.
Among the businesses that have been affected by online fraud is David Barrett, director of Cybercomp which sells computer parts, who shut his website after getting stung for a £2,500 charge-back. He thought he was protected after getting authorisation for the transactions from the bank that issued the card.
FSB National Policy Chairman John Walker explains: "Businesses are confused over what authorisation means. When a transaction takes place over the Internet, credit card authorisation is not a payment guarantee, it only indicates that the card has not been reported lost or stolen and there are sufficient funds available in the cardholder account."
The FSB fears that cardholder-not-present fraud will grow as the banks focus on tackling cardholder-present fraud. It welcomes the new chip and PIN credit cards, and all retailers who use the FSB for their merchant services already have chip and PIN compatible terminals, but as John Walker says: "There is a danger that as chip and PIN takes off, fraudsters will just use the Internet instead."
Mr Walker concluded: "For the small business community to fully embrace e-commerce, we need to work towards a liability shift so that the issuing bank is liable in the event of cardholder-not-present fraud in the same way as the card issuer is liable in the event of cardholder-present fraud."
Most Internet fraud involves the use of fraudulently obtained card details to make a purchase - cardholder-not-present fraud. When this type of fraud occurs, it is the retailer rather than the issuing bank that is liable.
In practice, this means that retailers face a charge back if card details have been fraudulently obtained even if the transaction has been correctly authorised.
(SP)
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