The boom in credit card transactions has gone hand in hand with a rise in fraud. However, credit card companies are fighting back, as Steve Clough reports.
Remote shopping is booming, both on the Internet and through the more traditional channels of mail order and telephone order. Visa Europe?s figures show mail order/telephone order (MOTO) transactions in the UK have grown by over 30% in the last year, and Internet transactions by 75% in the same period, making this the fastest growing retail channel of all. Combined, MOTO and Internet transactions now make up over a quarter of Visa?s turnover in the UK.
This growth is driven by both consumers and retailers. Consumers love the convenience of shopping where they like, when they like and being able to order from retailers who they cannot conveniently visit. Retailers love the ability to sell to people from all over the country ? and, indeed, the world ? while saving on maintaining premises, displaying goods, etc. Of course, there are challenges, such as presenting goods or services in a way that appeals to customers who are not face to face with the retailer. However, good website design and increasingly sophisticated call centre operations allow these challenges to be met. Getting paid is a key part of any retail operation, and the widespread availability of credit and debit cards provides a perfect payment method for remote transactions.
However, the boom in remote shopping does bring some new problems for Visa. Fraud prevention systems for card payments use identification of the customer as a key part ? either using a signature on a paper voucher or a Personal Identification Number (PIN). When the customer is not present at the retailer these methods will not work, which has led to fraud losses in Card Not Present channels (either MOTO or Internet) running at significantly higher levels than for face-to-face transactions. The switch to using chip and PIN technology in the UK, while providing huge benefits for face-to-face transactions, will inevitably shift fraud to less well protected channels such as Card Not Present (CNP), so retailers using these channels must review their defences against fraud.
There are a number of effective tools available to retailers to combat card fraud in CNP channels, but to date these have not been well enough used. These include the Card Security Code (CSC) and the Address Verification Service (AVS), which can give protection across all Card Not Present channels. The CSC uses three digits printed on the signature panel of the card to confirm that the customer is in possession of the actual card, and has not just made up or copied the card number. AVS allows the retailer to confirm that the address given by the customer matches that used for statements. Used together, CSC and AVS can reduce fraud by 70%.
The extra connectivity offered by the Internet has allowed a further fraud prevention tool to be introduced for e-commerce transactions. Known as Verified by Visa (or Secure Code for MasterCard transactions), this allows the retailer to put the cardholder in contact with the card-issuing bank during a transaction. The cardholder then verifies his identity to the bank via a pre-agreed password and the bank sends its confirmation to the retailer that the customer is genuine. This new service is now widely available and can make dramatic reductions in fraud for retailers employing it.
Fraud is a problem for all participants in card transactions, so in the UK, the credit card companies, banks and retailers must work together to solve it.
Steve Clough is Head of Card Not Present at Visa Europe. e: cloughs@visa.com. Visa recommends that all retailers selling remotely should use the CSC and AVS, with those selling over the Internet also moving to deploy Verified by Visa as quickly as practicable. More information about these services, and about best practices for fraud prevention, are available at http://www.cardwatch.co.uk or by calling 08705 500005.
Visa are participating in the Europe Talks Tickets 2005 Conference at Novotel London West, Hammersmith next February. Focusing on the opportunities presented by globalisation and advanced technologies, the conference themes range from training and staff motivation to customer relationship management and venue resource management. w: http://www.ett.eu.com