E-Tailers Wary of Credit Card Fraud
Online merchants have been quietly cutting back on sales to foreign customers, rather than expose themselves further to credit card and shipping fraud.

"In some cases companies are saying `forget it — it's not a big enough business for me to be worried about,' " said H. Robert Wientzen, the chief executive of the Direct Marketing Association, a trade group representing mass mailers, catalog sellers and Internet merchants. Mr. Wientzen says that decision, while often necessary, is costly. "There are companies that could be eliminating 1 to 2 percent of sales by not operating in some fairly big foreign markets," he said, "and that's a lot of money."

CD Universe, an online music, movies and games retailer, is among the Web sites that have scaled back their overseas businesses. According to the company's chief executive, Charles Beilman, the Web site has stopped sending orders to Romania, Bulgaria and Indonesia, among others, because of the high rate of credit card fraud he has encountered with customers from those countries.

"It's unfortunate," Mr. Beilman said. "I'm sure we had handful of legitimate customers in Romania," he said. "But when eight out of every 10 orders are frauds, I just can't keep doing it."

That is because Mr. Beilman and other online merchants end up paying the bill for so-called charge backs, which are passed along to e-tailers by credit card companies when legitimate card holders report that fraudulent purchases have been made on their monthly statements.

Buy.com is another example. According to Brent Rusick, the company's chief operating officer, Buy.com stopped shipping to all but 25 foreign nations in March and implemented stiff rules for customers on the list of 25, chiefly because of fraud concerns.

Countries that did not make the list include all those in Eastern Europe and the former Soviet republics, as well as Indonesia, the Koreas and China. Some of the nations on the authorized list include Britain, France, Taiwan, Japan and Australia.

"We're extremely conservative about our export business," Mr. Rusick said. He noted that international customers must spend $500 or more on goods, and they cannot use their credit cards to order merchandise. Rather, they must wire money to Buy.com before the company will ship their orders.

Mr. Rusick said the company did not accept credit cards on overseas orders because foreign credit card issuers do not have address verification systems. "So we can't verify that, yes, indeed, the person making the order matches the information the bank has on them," he said.

Credit card issuers in this country are using verification codes that are typically printed, not embossed, on the cards, and which help merchants determine if the customer is actually holding the credit card, not just a card number they have stolen.

But that system will not be available in Europe "for another couple of years," Mr. Rusick said, leaving merchants like him staring at foregone revenues, which he admits could be substantial. Right now, he said, revenues from exports "are not a significant piece of our business."
http://www.nytimes.com/2002/07/15/technology/15ECOM.html