Setting the record straight about. online credit card fraud for consumers

Transcription

1 T H E P H A N T O M M E N A C E Setting the record straight about online credit card fraud for consumers

2 Web-based transactions are, in many cases, safer than those that take place over the phone or even with bricks-and-mortar retailers. Credit card fraud bedevils web! Millions lost to Internet fraud! They re common headlines, and guaranteed to grab attention as consumers consider how best to take advantage of expanding Internet shopping opportunities. But do headlines like these really tell the whole story, or are they more often than not used as an easy way to sell a few extra newspapers? What is known is that the perception that credit cards can be intercepted easily on the Internet is quite real. ~ According to Australian research company, the security of credit card transactions remains the number one concern both for Internet users who have yet to make an online purchase, and for those who have performed an online transaction. The US National Consumer s League Internet Fraud Watch (NCL) has reported that American consumers lost over $3.2 million to online scams in 1999, a 38 per cent increase over the previous year. Importantly, the vast majority of cases reported to the NCL involved payments by cheque or money order, with credit card transactions accounting for only three per cent of cases. The NCL s figures were corroborated by a recent survey by Internet research firm BizRate.com of 13,500 online consumers. The study found that, although more than 50 per cent of those surveyed expressed concern that their credit card details would be stolen during an online transaction, less than two per cent had actually experienced credit card number theft. Hally Wolhandler, VP of Research at USbased ActivMedia Research, said: Fear of placing electronic transactions has kept some wouldbe buyers off the Web, just as fear of fraud keeps some businesses from diving in with both feet. But the reality is that Web-based transactions are, in many cases, safer than those that take place over the phone or even with bricks-and-mortar retailers.

3 Penetration of online shopping among regular Internet users > 10 times 19% once only 22% 5 9 times 18% 2 4 times 41% Source: Online Survey #8, Jan March 2000 (overall n = ) These sentiments were noted in 28 February 2000 issue of Industry Standard when it investigated fraud affecting credit associations like Visa and MasterCard. The article reported little difference in the rate of credit card fraud between online transactions and those conducted face-to-face, by mail or by phone. In terms of percentage of fraud they track about the same, at less than 0.09 percent, said Steve Ryan, senior VP at evisa, the credit card association's online unit, who is sceptical of stories claiming online fraud is much higher than offline. There are always people trying to create the impression that there is a problem out there, said Ryan. We don't have a fraud problem. Officials at rival MasterCard peg overall fraud rates at about 0.08 percent and agree with Visa that the rate of fraud for Internet transactions is roughly the same as for other non-face-to-face transactions such as mail orders and phone orders. SHOPPING NOW AN INTEGRAL PART OF THE ONLINE EXPERIENCE There is no question the Internet is evolving into a major retail channel, with shoppers enjoying the convenience and flexibility of being able to research products and make purchases from the comfort of their own home. According to the Forrester research company, worldwide Net commerce will rise from $657 billion in 2000 to reach $6.8 trillion in 2004, with the Asia-Pacific Region accounting for around a quarter of that figure. Japan is expected to dominate the region, followed by Australia as the next largest e-commerce power. Other research places Australia even higher on the scale, with a global study by Taylor Nelson Sofres Interactive predicting that almost one-third of Australians will be shopping online by early The Global E-Commerce Report: April-June 2000 places Australia second only to Norway in terms of the likelihood of consumers shopping online. One of the most interesting trends in e-commerce growth is the reduced time new Internet surfers wait before making their first online purchase. According to ActiveMedia Research, consumers who first went online more than four years ago took an average of 22 months before actually buying anything over the Web. Those people who were new to the Internet during 1999 waited only four months before making their first transaction, and many made a purchase in their first month online. However, long-term Net users tend to spend twice as much money online as newer arrivals, and the amount of dollars spent rises with time spent online. THE AUSTRALIAN EXPERIENCE In terms of Internet usage, Australians are living up to their reputation of being early adopters of new technology. The Australian Bureau of Statistics reported that 2.3 million households (33 per cent of the population) had Internet access at home by May 2000, while a total of 6.4 million adults (46 per cent) had accessed the Internet on at least one occasion during the previous 12 months. estimates that around three million Australians use the Internet on a regular basis, of whom half have shopped online at least once. The fact that 1.2 million Australians have made repeat purchases indicates their online shopping experiences have been positive. An online survey in January March 2000 found that 41 per cent of regular Internet users had shopped online two to four times, while 22 per cent had made one online purchase. Significantly, 19 per cent had made over 10 online transactions. Due to continued strong growth in the number of Internet users, it seems likely the total number of people shopping online and the proportion of frequent shoppers will continue to increase.

4 Xmas 1999 Shopper satisfaction 80% 70% 60% 50% 40% 30% 20% 10% 0% Completely Mostly Moderately Unsatisfied Not impressed Source: Online Xmas Survey, December 1999 (overall n = 2181) Hurdles for online shopping Xmas % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% I prefer to shop offline I didn t trust the website with my credit card details I couldn t find the products that I wanted I don t buy Christmas gifts Shopped during 1999, but NOT at Christmas Never shopped before I didn t think they could deliver by Christmas I was unsure how to return the gifts if neccessary I experienced difficulties when navigating the website Source: Online Xmas Survey, December 1999 (overall n = 2181) I don t celebrate Christmas CHRISTMAS 1999 The rapid growth of e-commerce in Australia is demonstrated by the results of the Xmas Shopping Report, which found that nearly 600,000 Australians spent $150 million buying gifts online in the leadup to Christmas This was four times the number of people who made e-commerce transactions at the consumer retail level during the previous Christmas, and was consistent with the overall increase in online retail spending, which grew from $250 million in 1998 to over $920 million in In addition to the $150 million spent on gifts, online shoppers bought non-gift items worth $74 million. The survey found they bought only part of their Christmas shopping (28 per cent) on the Internet, as well as using it to research 41 per cent of their offline purchases. Consumers overwhelmingly reported a positive buying experience, with 70 per cent completely satisfied, 18 per cent mostly satisfied, 10 per cent moderately satisfied and only two per cent dissatisfied with their purchases. Of those who did purchase gifts online, 98 per cent said they would be likely to shop online again next Christmas. HURDLES FOR ONLINE SHOPPING This research also canvassed experienced and inexperienced online shoppers to ascertain major hurdles to online shopping. Interestingly, individuals who never shopped online reported a significantly higher concern about trusting websites with credit card details than did those who had shopped during 1999, but not at Christmas. Of note, a major hurdle for the more experienced online shopper was finding the desired products. A survey conducted early in 2000 revealed that, while the number of online shoppers is expected to increase in the foreseeable future, security of financial transactions remains a key concern to consumers. Shoppers who have purchased online only once recorded a higher concern with this medium, although this trepidation decreases slightly with repeat purchases. It is interesting to note that computer viruses and response times are of greater concern to online shoppers than financial transaction security. Perhaps indicative of the future trend of online shopping, the primary concerns of those who purchased more than once are response time and junk mail/intrusive marketing. Concerns of online shoppers 1H % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Computer viruses Response times Financial-transaction security Junk / intrusive marketing Privacy of individuals Cost of Internet access Censorship Unreliable information Indecent material Purchased once Source: Online Survey #8, Jan March 2000 (overall n = ) Purchased more than once Regular Internet users Obtaining value for money Cost of upgrading PC and modem Illegal material

5 the percentage of credit card chargebacks or losses in the online retail industry is actually lower than it is offline... ONLINE CONSUMER CREDIT CARD FRAUD Given the substantial size of the online economy already, and the enormous potential for growth, it would be surprising indeed if there weren t numerous incidents of unlawful activity centred around the Internet. The criminal elements of the world have been quick to recognise the significant opportunities the Internet represents for online fraud, particularly in light of the way it enables them to operate across international boundaries and use multiple aliases. Internet-related fraud is certainly a matter for concern, and authorities around the world are active in combating a range of illegal activities being conducted over the Internet. One of the most widely publicised cases of credit card fraud occurred in the US, where a group of web-based companies made small, recurrent charges to hundreds of thousands of credit cards. Although this fraud does have an e-commerce connection, experts don t believe the crooks obtained the card details on the Internet, but instead think they used software programs to generate valid credit card numbers out of thin air. Since each charge only involved a small amount of money (US$20), banks processing the transactions didn t subject them to the full authorisation check that would have highlighted the fact that card numbers had been software-generated. Research by ActivMedia has found that the percentage of credit card chargebacks or losses in the online retail industry (1.22 per cent) is actually lower than it is offline (1.47 per cent), indicating that e-commerce fraud is less of an issue than previously thought. CREDIT CARDS SAFEST FOR ONLINE TRANSACTIONS Improvements in security and encryption technology are making it more difficult for criminals to intercept online transactions. Both Netscape Navigator and Microsoft Internet Explorer use Secure Sockets Layer (SSL) to encrypt data before sending it over the Internet. SSL scrambles personal data and provides an unbroken key or lock that appears in the bottom of the browser window. This technology provides a secure connection that keeps data private during transmission over the Internet, however it does not authenticate the parties at either end of the transaction. Visa International and MasterCard International, with support from many of the world's top financial institutions, are presently working to develop a more advanced encryption process called Secure Electronic Transaction (SET). SET involves a system of digital certificates provided by card issuers, and encryption. It enables the identity of both merchant and cardholder to be authenticated, and also ensures that neither the merchant or cardholder s bank sees the purchaser s credit card number. CREDIT CARDS OFFER CONSUMERS PROTECTION AGAINST FRAUD Using a credit card when making purchases online provides an additional benefit as financial institutions offer consumers a measure of protection against fraudulent credit card transactions. In most cases, if the cardholder immediately reports any unauthorised transactions made against their credit card, banks will usually not hold them liable for the amount involved. Often, liability for unauthorised use is limited to $50. If consumers don't receive the goods ordered, or they are of an unacceptable quality and the goods have been returned, the bank handling your credit card may undertake a 'chargeback'. Banks may be willing to cancel the transaction and reverse the payment to the business. Trust in credit card transactions over the Internet clearly plays an important role for consumers debating whether to purchase goods online. Consequently, it is important to report that while consumer misgiving regarding the safety of online financial transactions remains the number one hurdle to more active online purchasing, this perception of high risk may be significantly misplaced.

6 F O R M O R E I N F O R M A T I O N AUSTRALIAN COMPUTER SOCIETY The Australian Computer Society ( is the recognised association for information technology (IT) professionals, attracting a large and active membership (15,000) from all levels of the IT industry and providing a wide range of services to Members. A member of the Australian Council of Professions, the ACS is the public voice of the IT profession and the guardian of professional ethics and standards in the IT industry, with a commitment to the wider community to ensure the beneficial use of IT. NATIONAL OFFICE FOR THE INFORMATION ECONOMY The National Office for the Information Economy (NOIE) ( is Australia's lead Commonwealth agency for information economy issues. Part of the Department of Communications, Information Technology and the Arts, NOIE's purpose is to implement Commonwealth Government policies to encourage the uptake of online commerce and the creation of an information society in Australia by ensuring an integrated and innovative approach to online policy. NOIE works to ensure the lives and work of Australians are enriched, jobs are created, and the national wealth enhanced, through the participation of all Australians in the information economy. To learn more about consumer issues relating to shopping on the Internet (and using credit cards online), examine NOIE's Shopping Online Facts For Consumers which can be found at The information provided in this news update is not meant to be a definitive treatment of the subject or a substitute for legal or other professional advice. It is informative only and should not be relied upon as the sole basis of a decision on the issues.