Hopping online to order whatever it is a person might need, in exactly the right color and to exact specifications is one of the best things about living in the Internet Age.
Customers simply enter their credit card information and their item arrives within a few days, just like magic. Unfortunately, as online transactions increase, the costs to online merchants due to both fraud and fraud prevention are also climbing. Today, it’s estimated that about 7.5 percent of online revenue goes to these expenses, according to Javelin Strategy & Research, a payment industry consulting firm.
Steep increases in this number are projected for the future, says Aite Group, LLC, another firm that analyzes online payments.
The firm expects $4 billion in card-not-present fraud this year, up from $3.2 billion last year. By 2020, Aite Group, LLC projects fraud losses of $7.2 billion. Card issuers have been taking this fraud seriously, both by developing smarter cards and trying to identify patterns that point to fraudulent purchases. The big problem is that there are so many different types of online transactions that have so many variables that there has yet to be a good set of patterns that say, without a doubt, “Yes, these are always fraud.”
A Data-First Model
The credit card industry is now tackling the fraud problem from a different angle—a data-first model. Instead of waiting for fraud to happen and reacting, the industry is going to make it easier for online merchants to verify additional information, including customer email, billing address and shipping details. Currently, very limited information is sent to verify a purchase, which is why it’s so easy for anyone to commit credit card fraud online.
Another solution currently being explored is called tokenization. Instead of storing customer data as identifying information and credit card numbers, a token will be used. This completely replaces cardholder information, preventing hackers from being able to access thousands of credit cards simply by breaking into a single commercial database. If hackers do manage to gain entry, they’d be sorely disappointed with the useless tokens they found.
Although online merchants have long been seen as the path of least resistance, the new security requirements coming from the credit card industry could help to curb much of the billions in losses they’re suffering. Merchants who adopt these new standards sooner rather than later stand to save a considerable amount of money chasing fraud, especially with the holiday shopping season in full swing.