As Card Not Present Transactions Increase, So Does Fraud
More and more purchases are being made online. It has been estimated that every 30 seconds, $931,490 is generated from global ecommerce sales on computers. Mobile devices account for $269,683 of ecommerce sales for that same length of time. All of these sales are card not present transactions. The problem is that as more and more card not present transactions are processed, the more chances there are for fraud. As it is, credit card fraud is a big problem. Losses from fraud topped $16.31 billion around the world in 2014.
Recently, the Federal Reserve Board reported that between 2014 and 2015, the number of payments made with credit cards increased 6.8%. The number of cases of credit card fraud far exceeded their predictions for the same time period, according to reporting by the Credit Union Times.
In 2015, the Fed has said that payment processing services put through about 60.6 billion transactions using general use prepaid cards and debit cards. These translated into a value of about $2.31 trillion. While the increase of 6.8% was consistent with the growth rate for past years, the amount of fraud blew the predictions out of the water. For the same kinds of cards, losses due to credit card fraud increased to $2.41 billion. That represents an increase of 44% from 2013. They say there were 12% more fraudulent transactions and they were worth 28% more. The Fed reported this information as part of the agency’s efforts to comply with the Electronic Fund Transfer Act.
Transactions where the credit card was present and a signature was required to complete the purchase made up about 65.5% of all credit card transactions. The Fed reported that the card not present transactions were responsible for about 14.5% of all purchases made with credit cards in 2015. These card not present transactions grew at a rate that was double the rate of transactions made in stores with credit cards. The value of the typical card not present transaction was just over $70. This was double the value of credit card transactions that were made in person in 2015.
The fees associated with processing credit and debit card purchases differed widely in 2015. The costs that are attributed to credit card transactions include the clearing, authorizing and settling the transactions. For the median user, the cost was 12.3 cents. For merchants who were at the 75th percentile, that amount grew to 30.5 cents. In terms of costs for each transaction, the average was 4.2 cents. This represented a reduction since 2013 when the average price per transaction was 4.6 cents.
Merchants who sell goods and services online are always looking for ways to safely accept payments with credit and debit cards. There are a few things that merchants can do. Some preventative measures are:
- Use the verification processes offered by credit card processors. Visa has its “verified by Visa” and MasterCard has just launched “Decision Intelligence” that uses artificial intelligence to weed out and find fraudulent transactions.
- Make sure the purchaser knows the billing address. While some people do buy items online that they have sent to a separate address than their billing address so not every transaction that includes a different shipping address is fraudulent. The authorized user of a credit card will know the billing address and zip code but someone who stole a card may not. Make sure you check this.
- Ask for the security number. Every credit card now has a three digit number that is printed next to the signature line on the back of the card. Only people who have physical possession of the credit card have access to that number. When people make purchases on your website, you should require them to input this number.
- Check the IP address. When purchases are made online, record the IP address. If the chargeback process is started, you can refer back to this to see where the transaction originated.
- Only use shipping methods that require a signature. This will come in handy when a customer claims they did not receive a package that they actually did.
It is not always possible to prevent all fraudulent credit card transactions but there are things merchants can do to cut down on them.