There's good news for retailers: credit card losses due to fraud are down by 13%. Many attribute this to the use of Chip and Pin technology, which requires that a cardholder enter a pin number when purchasing items at a store. But there is also bad news.

The bad news is that Card Not Present (CNP) fraud is on the rise. At the same time that overall credit card fraud fell, scams that use the Internet, telephone and mail have risen by 21%.

Retailers who engage in CNP transactions are at high risk for numerous reasons. First, neither the card nor the purchaser are present, which means the merchant is unable to check physical aspects of the credit card to insure that it's good. The retail operator only receives confirmation from the credit card company that there is credit available and that the card has not been reported as stolen or lost. Additionally, the company that has issued the card is unable to verify customer information presented via the net, phone or post. Finally, no signature or pin number is needed for CNP purchases.

With the rapid development of the international retail market through the Internet, retailers have been presented with a huge customer base that can be lucrative and perilous. Of the over 122 million pounds of CNP fraud reported about 15% of it occurred in transactions conducted with buyers in foreign countries.

Here are some safeguards a merchant can enlist to lessen the chance that they will be scammed by a CNP purchase:

  • Address Verification Service (available through your acquiring bank), which compares the address the credit card purchaser has provided with that on file with the card issuer.
  • Card Security Code (available through your acquiring bank), which requires that a string of numbers, other than those in the card number, be submitted.
  • Both MasterCard and Visa offer services, known respectively as MasterCard SecureCode and Verified by Visa, to insure merchants against charge-backs on specific World Wide Web purchases.
  • Some banks offer additional security services; information can be acquired from your bank.

What should merchants watch for when CNP purchases are made?

  • Be wary of any foreign purchases, since details regarding buyers are difficult to verify.
  • With international purchases, you may want to hold on sending goods until you can confirm payment from the credit card company.
  • For UK purchases, requesting a callback number where you can reach the purchaser can help deter potential thieves as can using the callback number to confirm identity.
  • If an address within the UK appears to be suspicious, use a courier service that can confirm the address and buyer.
  • If the customer comes to your storefront to pick up the items, ask for identification as if it were a card-present sale.
  • Customers not concerned with additional costs should be treated with caution.

The risks to your business are real. Retailers are responsible for charge-backs on fraudulent cards. To protect yourself, be sure that all of your employees understand the proper procedure for CNP buyers and the warning signs of fraud. Being aware of inconsistencies and using additional services that you can acquire via your bank or through card issuers will help in foiling this growing problem.