According to ComScore, a Virginia-based firm that tracks online shopping, consumers have already purchased over $19 billion worth of products online this holiday season. That’s an increase of 3% over last year. While that’s good news for online merchants, Mike Cronin points out in his article, ’Tis the season to be wary of online scams, that it also provides new opportunities for online scammers.

Much like online businesses, cyber criminals are working around the clock this time of year. But instead of sending out legitimate emails promoting online sales, fraudsters are sending out emails containing bogus links that closely resemble real retail websites. While their intent is to steal credit card information from unsuspecting online shoppers, the real victims in this crime will end up being online merchants.

The reason for this is what’s known as a chargeback—a truly dirty word for anyone in online retail. It works like this: once an individual whose credit information has been stolen discovers a fraudulent purchase on his or her account, she contacts the bank to report the fraudulent charge. The charge is then refunded to the individual, and charged back to the online merchant.

Unfortunately, by the time a chargeback is processed, the merchant has usually already accepted the order and shipped the goods to the address provided by the online criminal. And once the goods are out the door, they’re most likely never coming back. This means that goods have essentially been stolen—but not at the expense of the person whose credit information was stolen, instead it is at the expense of the online merchant.

Not only that, but the loss of the stolen merchandise isn’t the only way online merchants suffer from chargebacks. Other setbacks include:

• Increased fees: As credit card chargeback rates get higher, so do online merchants’ rates with card companies. If the fraud rate gets too high, online merchants may lose the ability to accept cards entirely, resulting in seriously negative impacts to revenue.

• Increased operational costs & overhead: The more questionable charges an online merchant encounters, the more resources—both time and money—will be spent trying to distinguish between good and bad orders. This can lead to a serious imbalance of resources.

• Member attrition & tarnished reputation: Once an online merchant’s website has been associated with fraud, retaining good customers and generating new ones becomes extremely difficult, resulting in more customer attrition and loss of potential business revenues.

Ultimately, when it comes to online holiday scams it’s the online merchants, not the shoppers, who are left with the bill. And while increased business this holiday season is good for online merchants, having the tools to effectively identify bad transactions may be the biggest gift of all.

Tags: fraud prevention, Online Fraud

This entry was posted on Wednesday, December 16th, 2009 at 3:44 pm and is filed under Holiday Fraud, Online Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.