et's face it: The Internet is a big part of our lives. E-commerce has become so accessible that consumers take it for granted. Banks have made it easy to execute virtually any banking transaction online, from account setup and maintenance to bill pay and money transfers. The Web makes it simple to buy, ship and track purchases.

With the approach of the holiday season and increased shopping by mail and online, it's imperative for merchants to be on the lookout for fraudulent card-not-present transactions. Educate merchants on the first line of defense against detecting fraudulent cards used for shipments to foreign countries and domestic "freight forwarders."

Online transactions overall topped $132 billion in 2004, up 39% from 2003 and 154% from 2002, according to VeriSign. No one really knows how much of the estimated $150 billion worth of online transactions this year will be fraudulent, but losses pegged to reshipping scams were estimated at $700 million in 2004, up from $500 million in 2003, according to eFunds.

Credit card fraud in online transactions alone might cost businesses as much as $60 billion in 2005, according to research firm Financial Insights. Being aware of the danger makes merchants better prepared to protect their business.

Today, many identity theft rings operate outside the United States but target U.S. merchants through phone and Internet card-not-present transactions. Statistics show that many foreign fraudsters order merchandise for shipment to Indonesia, Nigeria, Ghana or the United Kingdom. However, many merchants are more aware of these foreign schemes and wary of shipping expensive goods overseas.

As an alternative to foreign shipments, fraudsters often use U.S. citizens as dupes in their schemes by establishing "reshipping operations" that recruit unsuspecting people as middlemen. By hiring these unwary U.S. home workers to act as freight forwarders for their illegal purchases, these fraudsters make it appear that goods are shipped to U.S. citizens versus rerouted to overseas destinations.

Thieves know that approved online transactions shipped inside the United States are rarely scrutinized, particularly during peak shopping seasons such as Christmas.

Typically, these fraud rings operate by contacting a merchant via e-mail or phone and making a card-not-present purchase. They provide a credit card number, and in some cases, images of the front and back of the card to further create the illusion of legitimacy. After fraudsters have completed an order and received merchandise, they initiate transactions using other card numbers.

Undetected fraud costs merchants dearly through chargebacks and merchandise loss. The key to prevention is being on guard. Receiving an authorization for a transaction does not guarantee that the card is valid, nor does it guarantee that sufficient funding is available on the card's credit line to support the purchase.

Code-10 Alerts

Most acquirers, including NOVA Information Systems, offer clients a strong line of defense against foreign shipment fraud through the industry standard "Code 10" process, backed by the experts in a loss prevention group. Take the time to understand Code-10 procedures, and educate merchants.

For example, if a mail-order merchant receives a suspicious U.S. order or request for shipment of merchandise to a foreign country, the merchant contacts NOVA's voice authorization department and requests a Code 10. The call is routed to the card-issuing bank, and the card number is simultaneously forwarded to the loss prevention department.

A loss prevention representative contacts the card-issuing bank to inquire about the validity of the card. He or she may also contact the cardholder, the ship-to address, or any other party to the transaction.

If the card or transaction is confirmed to be a fraud, the merchant is contacted to stop shipment. A query is run across the entire merchant base to determine if the same card has been used at other merchant locations.

If so, the additional merchants are contacted in an attempt to stop their shipments. This proactively prevents chargebacks and losses that other merchants targeted by the same criminals would sustain.

So far this year, Code 10 has prevented more than $16 million in fraud losses for NOVA merchants. Of the more than 7,000 Code-10 calls received this year, 86% involved transactions confirmed as fraudulent. Spotting fraudulent transactions before shipping merchandise significantly reduces fraud losses incurred by small businesses.

As an ISO or merchant level salesperson, you will extend a greater sense of security to merchants by processing with an acquirer that has the ability to stop potential fraudulent activity before merchandise is shipped. Make it a goal to educate and inform clients about the unique assistance network set up to help reduce fraud.

Michelle Graff is Vice President of Marketing for NOVA Information Systems. E-mail her at michelle.graff@novainfo.com .