Preventing Fraud: The Rules at a Glance

The difference in how 'card not present' transactions are treated has led to online merchants having a greater exposure to credit card fraud than brick-and-mortar retailers

By Sarah D. Scalet

February 01, 2006 — CSO —

The difference in how "card not present" transactions are treated has led to online merchants having a greater exposure to credit card fraud than brick-and-mortar retailers.

Brick-and-mortar stores

Method: Customer hands over credit card.

Fraud prevention: Merchant gets signature and can ask for ID. Card may be swiped so that bank can verify information hidden on the card.

Merchant's risk: Low. If the customer disputes the charge, the bank accepts responsibility.

Anomaly detection: Done by credit card associations and banks, which monitor cardholder accounts for markers of fraud.

Vendor: Fair Isaac

Online and telephone sales

Method: Customer gives merchant credit card number.

Fraud prevention: No signature. Merchant may ask for card verification number or other information.

Merchant's risk: High. If the customer disputes the charge, the merchant accepts responsibility. Merchants also cope with "friendly fraud," in which a customer falsely denies having placed an order or receiving goods.

Anomaly detection: Done by merchants, who monitor incoming orders for markers of fraud.

Vendors: CyberSource, eFunds, Retail Decisions