Fraud on the internet is 12 times worse

Fraud on the internet is taking its toll on electronic retailers, who are getting hit not only by internet fraud, but also by the credit card companies. A new Gartner survey of more than 160 companies reveals that 12 times more fraud exists on internet transactions and that e-tailers are paying credit card discount rates that are 66 per cent higher than traditional fees.

E-tailers suffer also incur the costs of all disputes and fraud resulting from internet sales; and they pay discount rates to the credit card companies that are 66 per cent higher than fees in the real world.

Credit card companies generally absorb the fraud for traditional retailers, as long as the retailer follows procedures and keeps a signature on a credit card transaction receipt.

A merchant may pay credit card processors $2.80 for selling a shirt online, but pay only $1.80 for the same transaction in the store. According to the Gartner survey, e-tailers spend four times more to resolve chargebacks than retailers do.

Credit card companies have so far failed to offer e-tailers a cost-effective way to prevent fraud.

“There is no incentive for a credit card company to break this unfair fee structure for e-tailers,” said Avivah Litan, research director, Gartner Financial Services. “However, the credit card issuer that is bold enough to lower the fees online could create a real competitive advantage on the web and possibly gain early market share among e-tailers and internet shoppers. In the meantime, several savvy startup competitors are giving e-tailers alternatives to credit cards, such as processing that accesses bank accounts directly or via closed loop systems. At the current rates, those firms could give the card companies a run for their money.”

Gartner helps clients to achieve their business objectives through the intelligent use of technology. Founded in 1979 and headquartered in Stamford, Connecticut, the company achieved fiscal 1999 revenues of $734 million. Gartner’s 3,600 associates, including 1,200 research analysts and consultants, are in more than 80 locations worldwide.

Gartner