Fraud control tug of war

Linda Punch reports on how frustrated online merchants are coming together to attempt to develop their own solutions to online fraud.

It‚s understandable why Web merchants are looking for relief. A 2002 Gartner Inc. survey found that fraudulent transactions comprise 1% of total online transactions, 15 times higher than fraud in the physical world. Online retail sales increased 27% to $45.6 billion last year, according to the U.S. Census Bureau. And an e-merchant‚s losses can extend beyond the actual cost of the product or service charged to a fraudulent card. Because they operate in a card-not-present environment, e-merchants also are subject to the card associations‚ highest interchange rates, the portion of each transaction paid by acquirers to issuers in return for guaranteed payment. Visa‚s interchange rate for e-commerce is 1.80% of the sale plus 10 cents. That compares with Visa‚s card-present retail rate of 1.39% plus 10 cents. Under MasterCard‚s interchange rates, Internet merchants pay 1.90% plus 10 cents, compared with 1.40% plus 10 cents for card-present retail transactions.