More consumers are skipping the mall and buying online instead. Many traditional retailers have already moved online to maximize their sales among customers who either dont have access to their physical shops due to distance, or for whom shopping online is simply more convenient.
The move to online shopping, and the increased use of EMV standards to protect traditional card transactions, will heighten fraud risk for e-commerce.
Smaller merchants are at particular risk. Its inevitable that fraudsters will try to take advantage of medium-sized merchants and get money out of them. Often these midsize vendors have limited if any anti-fraud solutions in place. While fraud can take place in a store or online, its been proven that the risk is significantly greater in Card Not Present (CNP) transactions. Today, CNP typically refers to a credit card transaction made online, although it can refer to any payment where the card owner cannot physically present the card for a merchant's visual examination and can include mail-order transactions by fax, or over the telephone.
Fraud charges work differently for online companies vs. brick-and-mortar stores. For example, if somebody steals a credit card and tries to make a transaction, the merchant will be covered and insured by the credit card company. Alternatively, if an online merchant is processing that credit card transaction, the person who would be liable for any damage is the online merchant, not the credit card company.
In an effort to cut down on fraudulent use of stolen credit cards, the United States is set to adopt new credit card security Chip & PIN technology this year. The biggest change that we'll see in the future of credit card security is a drop in the amount of fraud in the real world. On the other hand, it will push fraudsters to the online world where they don't have to show the pin and where they don't swipe the card.
This will significantly reduce fraudulent card use in brick-and-mortar transactions. However, once fraudsters can no longer use stolen cards at the Point of Sale (POS), theyll move online where the new security chip is less relevant. Weve seen this dynamic in European countries where Chip & PIN technology has already been implemented and where POS fraud has been reduced, while CNP fraud has increased incrementally.
With the growth in e-commerce, fraud has become a larger and more complex issue, which is driven by international shoppers, new devices and legit consumers using privacy technology to hide their identity. With the October 2015 deadline for credit card companies to insert chips and PINs in cards, we suspect this will make it harder for fraudsters to monetize the breached data in the physical stores. As credit card companies begin complying, the overall industry will see an increase in online fraud.
Liron Damri is the COO of Isreal-based antifraud service Forter.