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How Credit Card Fraud Affects e-Commerce Business

  by Isaac Thuku  
  credit card fraud  
  image courtesy of imagesource  

We have been hearing of an alarmingly increase in reports on website data, identity theft and credit card fraud. Any business that collects customer information or payments online now runs the risk of being a victim.

For those unfamiliar with the term, EMV stands for Europay, MasterCard, and Visa. EMV credit cards make retail and online shopping more secure and easier. Each card comes embedded with a chip that stores consumer data; it also governs the hardware that recognizes these cards. Customers are required to either sign their name or enter a personal identification number (PIN) in order to successfully authorize a transaction.


These EMV cards are much more secure in a face-to-face transaction – in person when someone physically swipes their card at a cash register. This is because issuing banks are able to verify the identity of a user via their signature on a paper receipt.

As the pace of retail evolution dictates retailers’ transaction, processes are constantly changing and fraud alongside them. In a struggle to stay on top of heavy competition, retailers are offering as many options to customers as possible when it comes to different ways of making a purchase. Consumers are now able to place orders online to be shipped to their homes or place orders from your mobile phone and other convenient methods.

However, these transaction processes are leaving behind more and more holes that fraud artists can exploit. While EMV reduced card-present fraud, card-not-present fraud has increased.

As a merchant, it is up to you to verify that the signature jotted down is similar to that on the customer’s card. Most recent EMV-capable terminals now use a PIN to verify the identity of a cardholder. However, these security measures do not apply to over-the-phone or online shopping.

CNP transactions (card-not-present) are very susceptible to fraudulent transactions. Issuing banks are still trying to work on improving CNP security, but to date, there is still no effective and efficient solution.

As of October 2015, the liability for fraudulent card-present transactions shifted from credit card issuer to the merchant. Now, if a fraudulent transaction occurs where an EMV card was used and the business in question had not set up to accept chip and pin payments, the merchant will be held liable for that transaction. Keep in mind that liability shift does not affect CNP transaction.

Previous EMV rollouts results of EMV cards in Canada, Mexico, Europe, and Australia have given e-commerce merchants cause for concern. Granted that card-present fraud has reduced drastically, the amount of CNP fraud has increased 79 percent in the United Kingdom and 50 percent in Australia and Canada.

This means that e-retailers in the United States should be very wary of what we fear could be a tremendous increase in the amount of online fraud. From a rough estimate, online fraud in the US could increase from approximately $3.1 billion to $6.4 billion.


So how can e-retailers protect themselves from falling victim? There are a few measures that you as an entrepreneur can take:

Arm yourself with top-of-the-line fraud analysis tools - There are fraud detection tools available. These tools can assist in identifying credit card fraud and giving you ample time to block such transactions. Some popular fraud tools are Kount and Signifyd

Compare billing address and the issuing bank – If the country of issuing bank does not match country of billing address, be wary as this is a red flag.

Compare IP address to billing address – Another red flag should be if country of consumer’s IP address does not match country of billing address.

Keep an eye out for the use of proxies – Some fraudsters will attempt to use a proxy to hide their real IP address. There are services available that can help you identify this deceit such as Maxmind.

Watch for transactions from high risk countries – Use lists such as the one found at Fraudlabs to determine whether a transaction is located in a country with high fraud risk.

Partner up with alternative financing providers – there are some consumer finance companies that can provide online shoppers with alternatives to using a credit card. Some of these companies take on 100 percent of the fraud risk. To learn more about them, visit Affirm’s website.




EMV technology has made it easy for e-retailers to reach a broader range of potential customers. However with it comes responsibility. As an e-commerce merchant, it is up to you to ensure that necessary precautions are taken with every transaction. The good thing is, with new technology and software being introduced every other day, it is just a matter of time before a technology that will protect your online business is invented. In the meantime beware and exercise due diligence in your transaction processing

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