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FSB calls for e-fraud ‘liability shift’

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The huge rise in Internet fraud is threatening the success of e-commerce, The Federation of Small Business (FSB) warned today.

In a letter to E-commerce Minister Stephen Timms, the FSB explained credit card fraud over the Internet or telephone was of particular concern to small firms because the retailer, rather than the issuing bank, is liable.

According to the FSB, Internet fraud costs the British economy £28 million a year, compared with £3.8 million in 2000; it is now acting as a disincentive to trading online.

The FSB cited the example of computer parts retailer Cybercomp, whose director, David Barrett, was forced to shut his website after getting stung for a £2,500 charge-back.

Barrett believed he was protected after getting authorisation for the transaction from the bank which issued the card - FSB policy chairman John Walker said businesses were confused over exactly what authorisation meant.

"When a transaction takes place over the internet, credit card authorisation is not a payment guarantee, it only indicates the card has not been reported lost or stolen and there are sufficient funds available in the cardholders account," he said.

The FSB expresses fears that cardholder-not-resent fraud will grow as banks focused on tackling cardholder-present fraud with the new chip and PIN system.

The organisation welcomed the new transaction procedure, and all retailers who used the FSB for their merchant service already had Chip and PIN compatible terminals but Walker warned there is a danger that as the new system took off, fraudsters will just use the Internet instead.

"For the small business community to fully embrace e-commerce, we need to work towards a liability shift so that the issuing bank is liable in the event of cardholder-not-present fraud in the same way as the card issuer is liable in the event of cardholder-present fraud," he added.

© Startups.co.uk is the biggest independent small business site in the UK. It has more than 2500 articles covering everything from taking on staff to dealing with VAT.

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