Internet merchants can fall into the trap of paying higher charges for defaults from the card issuers when they offer credit card payment for internet sales.
BY: Sangeeta Anand
The internet has made it easier for buyers and sellers to reach each other across boundaries. But sending and receiving purchase consideration across economies, even across the Tasman, can be constraining rather than freeing for many of New Zealand’s small exporters.
Many exporters are concerned about the risk of fraud while receiving online payments.
“I just got my fingers burned with a Hong Kong card that seemed genuine and got authorised,” says Loris Ives who runs McAuslin Merino-Lace, a Geraldine-based business that mostly exports to Australia, the US and the UK.
“But two months later it was reported as a stolen card; I had to refund the payment and the recipient got the goods! Now I talk first to the Fraud Department at Eftpos New Zealand before sending goods,” she says.
Ives has lived in Singapore, Malaysia, Sri Lanka and Indonesia, before returning to New Zealand. “I have a lovely relationship with our online buyers. All overseas payments from Australia and the UK have been fine.”
EFTPOS New Zealand warns of potential risks of accepting credit card payments from high-risk markets such as Asia and Africa.
“If a credit card payment turns out to be fraudulent, it may be charged back to you and could end up costing you more than the original sale was worth. High chargeback levels can also attract penalties from the Card Schemes (Visa or MasterCard) or result in the termination of your Merchant Agreement, “ says a guide issued by EFTPOS New Zealand. The company recommends steps to protect online risks including obtaining more details about the card and the cardholder; securing authorisation, and getting delivery verifications (see key takeaways).
Direct Payment
However, Ives is not willing to take risks anymore. “I am changing to Direct Payment Solutions (DPS) where the money is paid immediately; so I can’t lose (money) hopefully.” DPS are certified with banks in Australia, New Zealand, Pacific Islands, Singapore, South Africa, the US and the UK.
Another challenge faced by Kiwi exporters is being able to charge in a foreign currency. This is because
not all acquirers have the ability to provide foreign currency, says a payments solutions provider.
“Some merchants may wish to settle funds in New Zealand dollars but others in foreign currency since they may have invoices to pay in the country they are exporting to.” The other issues are: exchange rates, and validating cardholders to reduce possible fraud.
But there is a way to address this. “Accepting payments using a variety of acquirers, each accepting their local currency can help to lower fees from the acquirer. It gives the merchant more control over exchange rates, saving the merchant money,” he says.
No Credit
However, a Kiwi exporter seems set to be a trendsetter. Igor Petchorine has built a business, Globalmediapro.com, which does not accept credit cards.
This has allowed his low-cost business model to flourish over nine years. In that time hundreds of thousands of orders have been processed, some with a margin as low as 2%, a model not possible with credit cards.
Petchorine should know this well, since he reported revenues of $18 million last year. The major problem in accepting credit card payments online is chargeback, says Petchorine, who migrated to New Zealand from Russia in 2001.
Chargeback gives the payer the option to return payment in non-delivery situation. Merchants have to raise prices to compensate for chargeback fraud losses and chargeback risk management costs.
“Our insurance company, for example, refused to insure the risk, though they do tailored insurance products. We believe the risk associated with chargeback and fraud is unacceptably high. It can cost the merchant its business one good day.
“I don’t believe in the security of shopping online with credit cards. Millions of credit card numbers are stolen every year.”
He is right. Identity theft and credit card fraud are the fastest-growing categories of the US Federal Trade Commission complaints. One estimate puts the cost of credit card fraud at USD50 million a day in the US and CA8 million a day in Canada.
Bank/wire transfers are the safestpayment method, according to Globalmediapro. Bank/wire transfers are used in over 90% of all payments in the world by volume.
Petchorine has gone a step further and made it easier by accepting local payments in many countries. “In Australia, our customers can deposit directly into our bank account in Sydney. We receive such payments next day. The payment cost is often zero. As a result our prices in Australia are 20 to 30% lower than our competitors,” Petchorine says. He has similar accounts in 14 other countries.
“But the greatest saving comes from elimination of the chargeback risk. This is how we can make our prices significantly cheaper.”
However, the main challenge with direct credit is that it is a lot harder for a buyer to pay by DC than it is by credit card. Most buyers have a credit card and can complete a form in seconds.
Third Party Solutions
With that in mind, many third-party solutions providers are looking at developing solutions to minimize risks.
VerifySmart is introducing fraud prevention and detection technologies in Asia, one of the most high-risk markets for credit card frauds. VerifySmart’s technology reduced credit/debit card fraud loss numbers to zero in initial testing, while the current fraud solution – the chip and PIN – has reduced the fraud losses (as a percentage of card turnover) from 0.14% to 0.12% last year, according to APACS report (Association of Payment Clearing Services).
However, while selecting the best payment option, the last word comes from Ives who puts herself in customer’s shoes while deciding the payment options. “As a customer I find PayPal extremely annoying; so I wouldn’t inflict that on my customers.”
