To Chip Or Not To Chip: Is It Time To Secure Online Commerce Using A Virtual Chip?
Card-Not-Present (CNP) chargeback fraud continues to plague online merchants, as more and more retail sales take place over the internet where a physical credit card is not available to be authenticated.
In fact, during the holiday season this year, ecommerce sales were expected to ring up about $124 billion, an increase of nearly 15 percent over last year. Additionally, according to a November survey conducted by Internet Retailer and Bizrate Insights, 60 percent of consumer planned to spend more than half of their holiday shopping online with another 80 percent planning to spend 25 percent of their holiday shopping online.
With so many CNP transactions happening, refund and chargeback fraud become a major issue. One solution, posed by Visa Chief Risk Officer Ellen Richey, speaking at the Bloomberg Government Next.2018 conference in Washington, D.C. last month, includes creating a virtual chip or tokenization that ensure unique authentication online that has worked effectively at physical point-of-sales.
Suresh Dakshina, president of Chargeback Gurus, a global leader in ecommerce chargeback and fraud prevention solutions, second’s Richey’s call for improved solutions to help merchants avoid the cost and trouble from CNP chargeback fraud.
“With CNP chargeback fraud retailers may be held liable and have to eat the cost of lost merchandise and the reversed charge. The good news is CNP chargeback fraud is not hard to identify because one of the clearest red flags for ecommerce merchants is a chargeback following a CNP transaction,” Dakshina said. “We must do better in protecting our online merchants and adding a form of tokenization or unique symbol-based authentication could be a great step in the right direction. After the terrible years of retailer data breaches, we’ve learned and adopted the chip-and-pin system that has helped reduce fraud at physical stores, but now we need to be equally innovative and brave for online commerce.”
Dakshina suggests that until we can adopt a virtual chip-and-pin system for ecommerce, merchants should take a few simple steps to help protect themselves from CNP transaction fraud, including:
- On order forms, always ask for a card’s three-digit security code, or CVV
- Adopt card network customer verification products, such as Verified by Visa, Mastercard SecureCode and American Express's SafeKey
- If possible, closely review larger purchases or those made on popular, high-cost items
- Implement an address verification service, that compares the billing address with the information from the credit card issuer
- If high number of true fraud chargebacks are happening, consider implementing a fraud prevention tool to screen orders upfront
The future of securing online transactions from data breaches and the chargeback fraud that follows has already been proven.
“We have cut back on POS fraud at department stores, now finding a way to create a chip-and-pin system whether it is through tokenization or other innovative approaches can go a long way in helping protect our online merchants,” Dakshina said.
To help retailers fight chargebacks, Chargeback Gurus has released a new guide, Why Chargebacks are No Longer a Cost of Doing Business, that provides a roadmap for business on how to avoid chargebacks effectively and significantly improve their bottom line. The guide is free to download.