Merchant Accounts Could Stop Fraud… But They Don’t Want To
Yesterday I returned from a week in London to discover that one of my ecommerce sites was a victim of fraud. I have many measures in place to prevent fraud including strict requirements for exact credit card information as well as a custom built fraud identification system. Unfortunately it can’t always catch every con artist and this crook managed to rob me of $2,400 of product with stolen credit cards. The cards hadn’t been reported stolen yet so the transaction went through.
Why Merchant Accounts and Payment Gateways Don’t Care About Fraud
This type of fraud could be drastically reduced but the merchant accounts and payment gateways like Authorize.net don’t want that to happen. Why? Because they make a great deal of money from chargeback fees and interest on security money they hold. If a merchant like myself has too many chargebacks the payment processors often withhold up to tens of thousands of dollars as security money for their “protection” which is tantamount to holding the merchant up at gun point even if the merchant has a perfect record of refunding every single fraudulent transaction.
How Credit Card Fraud Could be Greatly Reduced on the Internet
Currently there is no incentive for a merchant to report credit cards as stolen when they detect fraud. For instance, in my recent fraud I had to refund 8 credit cards. I fully expect to receive chargebacks on some of these as the owner of the cards rarely notice that the full amount was refunded at a later date. Unfortunately I will still be hit with chargeback fees from the payment processor but at least I’ll win the chargeback dispute.
The Solution
Payment gateways and/or merchant accounts offer NO method for flagging a credit card as stolen.
1. There should be a simple web based form that allows me to flag a particular transaction as stolen and allow me to supply supporting evidence to the card being stolen.
2. To incentivize the merchant to report the card as stolen the payment gateway or merchant account should cancel chargeback fees on that transaction.
3. Ad further incentive to the merchant by developing a scoring system that rates merchants who report fraudulent transations quickly with a higher trusted score much like the auto insurance companys reward good drivers.
Its up to Visa, Mastercard, Discover, and American Express to put pressure on payment gateways and credit card processors to get their act together and to stop placing all burden on the merchant and to stop raping the merchant with fees.
