Ideate

Credit card confusion is ruining the industry

by Andrew Smith on 12/12/08 at 12:34 pm
7 comments

Yesterday this letter was sent to the Natal Witness:

Coming clean on credit cards
I can remember the days when credit card transactions could only take place at the point-of-sale and signatures were diligently compared. Nowadays it appears that all one needs is either your own or someone else’s credit card details (you can even buy them on the Internet) and you can conveniently purchase anything from the comfort of your own home or your scam centre. The banks, in effect, are encouraging credit card fraud by waiving signature verification for remote credit card transactions. It’s about the same as saying you now no longer need to key in a PIN number when withdrawing cash at an ATM.
Wouldn’t it be interesting if the banks divulged comparative statistics as to how much fraud is committed for point-of-sale transactions with stolen or skimmed cards compared with signatureless transactions via magazine offers and Internet purchases? The latter method is a very convenient way of effecting payment when compared with posting cheques, but it’s also equally convenient to do it fraudulently. Maybe I am missing something with regard to security when a credit card is used remotely and would welcome an explanation, and assurance, from the banks as to how secure these transactions actually are, together with some comparative statistics. We might then just find out who is encouraging or contributing the most towards the escalating credit card fraud.
But curbing remote credit card transactions might just impact on the millions of rands the banks are collecting in this manner. Credit cards are nothing more than short-term loans and it’s all about balancing risk. And the banks are now whining because the scales are tipping a bit too much in the wrong direction for their liking. The monster is turning on its creator.
B.V.KROEGER Montrose, Pietermaritzburg

This was my response:

It is not the banks who have waived signature comparison at point-of-sale. It is entirely up to the merchant (ie Pick n Pay, or your Laundromat) to check the signatures, because it is the merchants who are responsible for any fraud. If you spot a suspicious looking transaction on your credit card statement you can phone your bank and ask for it to be investigated. The bank then contacts the merchant and demands a copy of the signed receipt. If it can’t be produced, or if the signatures don’t match, the bank takes the money back from the merchant and gives it to you. At no point is the bank at risk of losing out on money. The only reason signatures are not being diligently checked is because merchants are not being bothered. The amount of credit card fraud at your local supermarket is so small that it’s not worth the tellers’ time and the customers’ inconvenience.

“Remote credit card transactions” (ie online and call centres) are treated the same way by the banks – the risk is entirely on the merchants’ shoulders, not the cardholder or the bank. My company’s online stores are contacted by the banks from time to time with the request to produce a signed receipt because a cardholder has queried a transaction. We obviously can’t produce one, and we normally end up with a chargeback. It is up to us as a merchant to not dispatch an order unless we’re convinced that the customer is genuine, and there are various ways of determining this.

Shutting down online credit card transactions will damage an important and growing industry. While worldwide retail sales are shrinking in these tough economic times, the UK has experienced a 15% growth in online trade this Christmas over last year, and the local industry is reportedly growing at 20-30% per year. E-commerce is here to stay, but unfortunately in South Africa the industry is still so small that the banks have no incentive to educate their staff and their customers as to the benefits, or to implement constructive methods of minimising fraud.

As a credit card holder, protecting yourself from becoming the victim of fraud (from card skimming or other scams) is simple – when your statement arrives in the post, look through each transaction and make sure they all belong to you. You will get your money back if any of them don’t.

Andrew Smith is the pedantic systems guy behind Live Alchemy, a SA e-commerce company. Andrew writes for Ideate in an attempt to make the world a more efficient place. View more articles by Andrew Smith.

Tags: e - commerce

Related Articles

• Good News For e-Commerce Entrepreneurs: Credit Card Access High In SA Internet Browsers
• Try out cellphone banking
• Follow-up on “collusion and price-fixing at the banks”
• Linked
• Collusion and Price Fixing at the banks