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Brick-and-mortar retailers go to great lengths--from mirrors and recording devices to personal ID requirements--in order to protect themselves from shoplifting and fraud. Online retailing is supposed to be a different breed, right?
Wrong. Unfortunately, the online commerce arena is no exception. If you run any type of online business and accept credit cards, you'll have to be Net savvy about online fraud or risk being a victim of "electronic shoplifting."
Here's how it's done: An online shopper buys products off your site using a credit card. You ring up the sale and ship the products. In one scenario, the customer goes to the credit card company asking for a chargeback, claiming the item was never purchased or never received. Or the customer uses a stolen card and has the products delivered to a location other than the billing address. In both scenarios, you, the merchant, are left holding the bag.
Online chargebacks are such a threat that Steven Peisner has built his business, Shared Information Services Ltd., around protecting and educating potential victims. "Chargebacks can be costly to your business," says Peisner. "You lose the dollar amount of the transaction, the merchandise itself and a chargeback fee."
What can you do to protect your business? "I get around the `I didn't get it' problem by shipping only via UPS," says entrepreneur Ryan Ryals, 27, owner of SilverSuperstore.com, an online flatware retailer in Auburn, Washington. "[UPS] offers tracking on every package they send, and I can get delivery confirmation instantly [online]." Another option: Make your return policy clear on your site and display a disclaimer that says the buyer agrees to the charges and will pay them.
Be careful you yourself don't unwittingly engage in fraud. Because it's difficult to obtain merchant status for Internet transactions, frustrated entrepreneurs are sometimes tempted to process their orders through another merchant's account. That's illegal.
If you allow another merchant to process your orders for you, they're under no obligation to send you the funds. You're at even greater risk if you agree to process another merchant's orders through your merchant account. "If there are a lot of chargebacks, the merchant account holder is responsible for refunding customer payments," explains credit consultant Gerri Detweiler, former executive director of Bankcard Holders of America and publisher of The Ultimate Credit Online Newsletter (http://www.ultimatecredit.com). "It can actually bankrupt a business."
If you can't get Internet merchant credit card status, there are companies that can help. Internet Billing Co. Ltd. (iBill), for example, offers online retailers real-time, secure credit card processing within 48 hours of sign-up. Through an arrangement with Visa, iBill assumes the risk of processing the orders. "We aggregate [charges] for merchants using an omnibus account," says Keith Miller, co-founder of the Fort Lauderdale, Florida, company, "so if merchants aren't creditworthy, we can handle their transactions."
The costs for such services are high--iBill, for instance, charges a hefty 15 percent of each transaction--but if you can't get merchant status any other way, it may be worthwhile.
Shannon Kinnard (firstname.lastname@example.org) is the owner of Idea Station, an editorial services company in Decatur, Georgia, that specializes in e-mail newsletters. She is the assistant editor of digitalsouth magazine (http://www.digitalsouth.com) and is working on her first book, which discusses marketing via e-mail.
Fight fraud with these resources:
The Complete Guide to Getting and Keeping Your Visa/Mastercard Merchant Status by Larry Scwarts and Pearl Sax (Fraud & Theft Information Bureau, $200, http://www.amazon.com)
ClearCommerce (http://www.clearcommerce.com) sets up secure, encrypted e-commerce solutions for small businesses.
Gerri Detweiler's Ultimate Credit E-mail Newsletter is an interactive Q&A with a debt expert. To sign up, send the word "subscribe" in the body of a message to email@example.com
No Chargebacks (http://www.nochargebacks.com) features a database of credit card numbers that are frequently used to commit fraud.
Internet Billing Co. Ltd., (888) 237-1764, http://www.ibill.com
Shared Information Systems Ltd., (818) 878-9700, firstname.lastname@example.org
SilverSuperstore.com, (800) 426-3057, http://www.silversuperstore.com