There are two types of business: Those that have been hit by fraud, and those that will be hit by fraud.
Ecommerce enjoyed 16% year-over-year growth in 2011, but online merchant fraud grew 22%. Don Bush, director of marketing at Kount, estimates fewer than half of all online merchants have developed or purchased fraud protection services.
Bush told attendees at the Operations Summit that too many merchants are fooling themselves when it comes to fraud protection.
“Most companies think they have fraud protection of some sort in place,” Bush said. “Many believe that their payment processor or gateway has fraud protection. Most of the protection that they offer is easily gotten around and doesn’t really do much to protect the merchant in the event of a fraud loss. Merchants are 100% liable so banks, gateways and processors have been slow to respond since they really don’t lose anything when fraud strikes.”
In 2011, fraud cost businesses over $100 billion and losses included unrecoverable product, chargeback fees, manual reviews, customer service, fines and penalties, customer satisfaction, and brand image.
Bush said that Visa cites fraudulent transactions as the top reason for chargebacks. Merchants are trying to keep up with fraud to protect their bottom line and their customers, Bush said, but most of the time they don’t realize they’re being attacked by fraudsters. Online merchants bear 100% of the liability involved with fraudulent transactions, and most don’t realize any fraud has occurred until they receive their chargeback reports often 30-90 days after the fact.
“Increases in ecommerce are driving increased fraudulent activity,” Bush said. “Fraudsters move hard and fast and take advantage of vulnerable opportunities.”
The big problem, Bush said, is most merchants are not fraud experts nor should they be. Stolen credit cards being sold on the open market are more prevalent than anyone can imagine, Bush said. “It would take me 15 seconds to buy a stolen credit card online. We have no idea what’s coming next. They move so fast.”