Firms risk fraud to keep customers

Online retailers may be risking fraud losses in order to avoid putting customers off by using secure payment systems.

Internet retailers are reluctant to implement secure online payment systems to prevent fraud, for fear that they deter rather than encourage consumers, according to recent research.

Internet fraud is a growing problem, according to recent statistics from the U.S. National Consumers League (NCL). The NCL said online fraud reported by consumers to its Internet Fraud Watch department totalled $4.3m for the year to date. The total of online fraud losses reported to the NCL for the whole of 2000 was about a quarter less, at $3.3m.

To ease consumer fears regarding online shopping, several firms have introduced secure payment systems. These include initiatives from Visa, for consumers to enter a PIN as well as their card number to verify online transactions; and from Paybox, for consumers to pay for goods using a mobile phone.

But Tom Arnold, chief technology officer of electronic payment solution provider CyberSource, said there has been low adoption of payment schemes due to concern that they confuse, rather than simplify Internet shopping.

"Merchants do not want authentication that causes customers to abandon transactions," said Arnold. "Without authentication, merchants might see three percent of transactions as fraudulent. But although using the system might cut fraud to one and a half percent, orders could drop to 92 percent as some customers don't want the extra steps."

Arnold also warned against covering up fraud: "There is a huge fear of admitting the problem to the public, but if you cover it up and it comes out later, it will be worse."