Charge-Back

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CHARGE-BACK

Credit cards are essential components of e-commerce. Although there are other ways to make payments on the Internet, the majority of e-commerce sites receive payment for goods and services via credit card. When consumers are dissatisfied with a transaction in which a credit card was used, or if their card was stolen and used illegally, it is possible for a charge-back to occur. In this event, the seller or merchant is billed back for the costs involved.

Merchants who deal with consumers face-to-face use a variety of steps to ensure a cardholder's legitimacy, including verification of the person's signature. When these precautions are taken, the bank that issued the credit card normally is responsible for any charge-backs due to fraud. However, when transactions take place without an actual card being presented to the merchant, as in e-commerce, the merchant is liable for fraud-related charge-backs.

With this in mind, online fraud is a major concern for companies engaging in e-commerce. According to an April 2001 report issued by the Worldwide E-Commerce Fraud Prevention Network, half of the businesses in the United States saw online fraud as a major problem. Because prosecuting offenders is very difficult, more than 30 percent of those surveyed listed it as the most significant threat. Planet IT revealed that Web merchants suffered higher charge-back rates than traditional offline retailers because malicious individuals had around-the-clock opportunities to attempt fraudulent purchases using various technologies.

In the early 2000s, companies like Home Depot, Wal-Mart, and Nike used real-time payment and risk management technologies from companies like CyberSource to reduce their risk. To decrease the incidence of online fraud at Nike.com, Nike used CyberSource's Internet Fraud Screen Service that relied on 150 different factors to evaluate the risk of fraud in transactions before they were processed. Measures like these were unfortunate but necessary, not only to prevent losses for companies, but to prevent higher charges for consumers as well.