Credit card fraud is a growing problem on the Internet. Banks are responding by denying merchants credit lines to do transactions. Network World Senior Editor Ellen Messmer recently interviewed Lynne Nostrant, vice president of consumer electronic commerce at Visa International, on the subject of Internet-based credit-card processing.
Q. The credit card associations, including Visa, are very reluctant to discuss Internet-related credit-card fraud. From one payment processor, though, we heard that Visa tells them that 50% of all the problem calls Visa gets are related to the Internet even though less than 4% of all credit-card transactions are done on the 'Net.
A: This is true, though the figure is actually more like 2%. I can't talk about the fraud at this point. We see a lot more international sales with the Internet. And when you have a transaction that's not face to face, it does make it hard to authenticate the cardholder. The Secure Electronic Transaction (SET) process for credit cards would address a lot of this.
Q. But SET hasn't caught on to the extent its backers would have wished, and now SET is being watered down in terms of security because with the new options in SET, the buyer doesn't even have to have a digital certificate to identity himself.
A: From the merchant's point of view, that's true.
Q. Network World readers have written to us to complain that Visa, MasterCard and other card associations are not doing enough to prevent Internet credit-card fraud. Could you respond to that assertion?
A: We are looking at different fraud-prevention models for the merchant. And we expect to have some type of risk management in the future.
Q. There's the perception that the banks consider the Internet high risk and that they aren't that willing to provide online merchants with the bank accounts needed to do credit-card processing over the Internet.
A: Well, it is very similar to what was going on in the mail-order environment 16 years ago. Under the Visa rules, the acquirer bank sustains the losses if the merchant turns out to be a bad merchant. So there are strict rules assuring the merchant is qualifying. It is opening a credit line. The acquirer bank gives them that money. Because the Internet is still a new environment, there are many Visa [bank] members being somewhat cautious. We do see this as the normal thing they would do.
Q. Since it's apparently not that easy to get a credit-card bank account, some online merchants appear to be processing the customer credit cards they get through the bank accounts of other merchants. One analyst describes this as "borderline legal." Is this practice, in fact, illegal?
A: We think this is a very bad idea. Some merchants are doing this because they haven't been successful getting a merchant account - the bank won't sign them up. For Visa, we have very specific rules that require there to be a direct relationship between the merchant and the acquiring bank. The merchant must be the one that originates the sales or services with the cardholder. The name that appears on the cardholder statement is the one they will recognize as the one they bought from.
Q. So, do you try to cut off the credit of the online merchant that does push credit-card numbers through someone else's account?
A: Well, it is against the rules. But we have to find out about it. It may be benign, although it's against the rules. But sometimes there are excessive disputes where the customer receives a billing order name they wouldn't recognize. And there are unfortunately a lot of disputes related to the quality or type of goods or services the merchants are selling. And for the credit-card holder, there are unrecognizable merchants on the billing statement. We've heard that's happening.
Q. So do you cut off the merchant's credit?
A: We try to work first with the member bank. Once something is brought to their attention, they want to clear up the problem. Unfortunately, there are a lot of shaky kinds of Internet merchants. We don't talk directly to the merchants. We talk to the member bank. The bank would have to revoke the contract. But we would rather have them bring the merchant into compliance.
Q. Since banks are not rushing in to open credit lines for Internet merchants, there seem to be other organizations that are taking up the slack by functioning as banks and offering this credit.
A: There are nuances here. In some cases, we do allow this kind of third-party provider or service for the merchant and the acquiring bank. That's OK as long as there is a direct relationship with the merchant and the bank. For someone who hasn't been able to get the bank to back them, there are others but they charge 10% commissions and more. We want to only let good merchants into the system. And the way we ensure that happens is to ensure it's a positive shopping experience.
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