Magazine article Management Today

Is It Safe?

Magazine article Management Today

Is It Safe?

Article excerpt

Shopping online can be risky -- card fraud on the web is a growth business. But the real loser is the e-tailer, who has to make good any loss. Will smart and semi-smart cards curb the fraudsters? Andrew Saunders checks out some of the solutions in the pipeline

When the a-mail from a US music e-tailer arrived in Nicola Dodd's in-box earlier this year, its contents were far more compelling than the usual 'buy one, get one free' puffery. Instead, it was the kind of message that anyone who has ever typed their credit card details online and hit the 'buy now' button secretly fears receiving.

'It said that their web site had been hacked and that card details held there were compromised,' she says. A week later at the cashpoint, her card was rejected. 'I was overdrawn because I had been charged for [pound]500 of computer gear, which I hadn't bought.'

Although the amount was promptly reimbursed by the bank in question, the bill for these non-purchases was more than enough to create temporary financial havoc. Her direct debits, standing orders and cheques were also refused, all because of the impulse purchase of a couple of CDs. 'I was shocked. I'd only used the web site once. They didn't tell me to cancel my card,' she says.

Dodd was the victim of an online fraudster -- a new variant of the low-rent crooks who hang around supermarket car parks and copy card details from discarded receipts. But instead of having to hunt around for one or two cards to scam, these new-age ne'er-do-wells can hack a single web site and gain access to thousands of accounts at once. Small wonder then that credit card fraud on the net is a growth business; it rose by 50% last year to an estimated $260 million across Europe.

Of course, card fraud is nothing new and certainly isn't unique to the digital economy. There is no shortage of experts who claim that e-commerce is far more secure than handing over your credit card in a restaurant or using it to buy something over the phone. But something in the anonymous nature of online shopping makes it feel more dangerous, regardless of the cold statistics, and this creates problems for e-commerce.

'Public concern over fraud is holding back e-business,' says James Robinson, managing director of boys' toys e-tailer firebox.com. 'There is a section of the online population who simply will not use their cards because of security fears.'

A look at the figures suggests that they may have a point.

Credit card company Visa estimates that 50% of all its disputed transactions' across Europe arise from online purchases, although those purchases account for only 2% of its card business.

Jon Prideux, executive vice-president of Virtual Visa Europe, the credit card company's online arm, says: 'Internet transactions generate up to 40 times more disputes than, for example, mail order transactions.'

Only about half of those disputed transactions are actually fraudulent (others include being sent the wrong CD or a shirt that doesn't fit), but even that represents a lot of fraud. 'Disputed claims are a big issue for banks and merchants. No-one is making any money out of dealing with them,' says Prideux.

So there seems to be something inherently risky about e-business, and one of the fundamental problems lies with the credit cards themselves. The internet may be the medium of the new millennium, but when it comes to handing over hard cash for our cybershopping, we are stuck in the middle of the last century. 'The first credit card was devised in 1958 and they haven't changed dramatically since,' says Mike Young, director of e-commerce strategy for e-cash pioneer Mondex.

Systems designed for the face-to-face environment such as shops, where the signature check is a reasonable way of ensuring the person wielding the plastic is its rightful owner, break down when asked to perform in cyberspace. You can't check a signature on the net, you don't have to talk to anyone or look them in the eye to commit s-fraud, and the chances of being caught are slim. …

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