April 9, 2003, 12:00 AM

Online payment fraud goes global--and so does the fight against it

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Since its spin-off in 2000, Retail Decisions has grown from 45 employees with $10 million in revenue to 200 employees with $45 million in revenue. The company is profitable. Clump attributes the growth not only to the increasing use of the Internet and the consequent fraud, but also to the growing issuance of credit cards around the world. “Our business is based in part on the number of cards on issue and every year that number increases and the business transacted on each card increases,” he says. “All the growth factors are going our way.”

Clump is particularly proud of the growth given the nature of the technology market the past three years. “2002 was the worst year ever for IT sales and services, and the worst year before that was 2001,” he says. “A lot of the people we targeted as customers were starving themselves into profitability.”

But many of those customers learned, he says, that while they were taking a break from investments, criminals weren’t taking a break from their activities. “Our experience has been that people who don’t spend money on fraud prevention now end up spending more later when it’s a bigger problem,” he says. “Once fraudsters realize that a merchant has a problem, they make the most of it.”

In most cases, online retailers have no recourse when fraud happens--and so the onus is on the merchant to take the prevention steps. “If a retailer in the face-to-face world follows the rules, there’s little liability,” Clump says. “The signature in those sales says the consumer was there, he accepted the value of the product and the card was his. Without a signature in the card-not-present world, there are no legal underpinnings in certain jurisdictions.”

Furthermore, once a fraud problem develops, it could quickly cause collateral damage. “If a merchant doesn’t keep its fraud under 1%, it’s liable to fines from the credit card companies,” Clump says. “And if they continue to exceed that level for a number of months, they could lose their merchant agreement all together. Once that happens, they’re essentially out of business.”

Thus even merchants who have a margin high enough that they can absorb a higher level of fraud have an incentive to keep fraud under control. “Merchants cannot eliminate fraud totally; but they can maximize, with our help, the number of good transactions they accept and minimize the level of fraud to which they are exposed” Clump says.

Similarly, merchants want to balance their fraud control measures against customer convenience. Intrusive fraud prevention systems could derail customers on their way to checkout. “Retailers don’t have to do anything and customers don’t have to do anything,” Clump says. “Anything that adds a stage in checkout is likely to result in fall-away of customers. Our services are non-intrusive.”

Since North America represents the largest retail market as well as the leading market in online retailing, Retail Decisions is investing heavily in its U.S. operations based in Hazlet, NJ, and Providence, RI. The company last year acquired the LiveProcessor technology from PaymentPlus Inc. LiveProcessor is an enterprise-class software for electronic commerce that combines online, call center, retail and automated telephone transactions into a single system. Retail Decisions charges a licensing fee of $40,000 to $250,000 then an annual maintenance fee for LiveProcessor. Customers include NetFlix Inc., Real Networks and Hotwire.

Retail Decisions last year also acquired the Paysolv consulting group based in Austin, TX, that has relationships with 350 clients in 40 countries. Its job is not only to provide payment consulting services, but also to scout out other opportunities for Retail Decisions. “Virtually everything we do in North America is transposable to other geographies,” Clump says. “The volumes are larger here and the customers more demanding than anywhere else. This will allow us to hone our services and skills to the highest levels.”

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