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Card Tricks

Internet retailers face a struggle when it comes to chargebacks and fraud.

This story appears in the February 2002 issue of Entrepreneur. Subscribe »

Ask any online merchant what the biggest problem with accepting credit cards is and you'll hear the term "chargeback." A chargeback occurs when a customer disputes a charge on his or her bill, often due to unreceived merchandise or disappointment in quality. Even worse, with stringent rules and dispute processes designed to protect consumers, some people use chargebacks as a convenient vehicle for defrauding Internet businesses.

Consulting firm Meridien Research forecasts global online card purchases will reach more than $310 billion in 2005, up from $45 billion in 2000. Meridien also estimates online credit card fraud will cost $9 billion in 2001. Ellen Moriwaki, risk management product manager with electronic payment solutions provider CyberSource, says those numbers recall the early days of credit cards. "Back when credit cards first came out, the fraud rate was incredibly high. Visa and MasterCard put systems in place to help deter fraud. The Internet world still is some way away from the point where the physical world is."

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