One recurring theme I hear when lumber dealers ask me about getting into the online retail business is how to deal with credit card fraud. Due to recent changes in credit card rules, and some high-profile data breaches at large chain stores, it is understandable that there are concerns for those of us who sell products online.
The main issue to understand about credit card sales is that there are two different types of transactions: Card Present and Card Not Present. If someone comes into your store and they have their credit card and they swipe it or insert it for approval, that is the most secure type of transaction because it’s considered a Card Present transaction. For those transactions, we pay the lowest rate. Typically, that rate is 1.5% or 2% of the transaction value.
Card Not Present transactions, whether they are online or even in the store, carry the most risk. As a result, we pay more to process those cards, sometimes even 3% to 5% of the transaction value, depending on the card type.
Every online transaction is a Card Not Present deal. We’re asking customers for their account number, zip code, three-digit code from the back of their card, and getting approval. That’s all we need. But we don’t know if the person on the other end of the transaction is the actual person who owns the credit card. In the event of a fraud situation, the person who does own the credit card may not even realize that their account has been compromised.
As retailers, we stand the risk every time we ship an order that the transaction could be fraud and we may never get that inventory back. Even though we got a signature from FedEx or UPS upon delivery, if it’s a fraudulent or stolen card, we’re still liable for that transaction.
The most expensive fraud situation we encountered at The Deck Store totaled about $10,000. Thanks to one smart employee’s intuition and initiative, we were able to cancel the transaction in time. Here’s what happened:
An order was placed that just didn’t fit the norm of a typical transaction for our business. A customer bought a bunch of decking, but didn’t buy any fasteners. Also, all the decking was the same style, meaning it was all grooved, not the grooved and solid combination that is needed to build a typical deck. While a number of employees spotted the irregularities, only one of them, Michael, took the time to call the customer and ask a few simple questions. The customer couldn’t answer Michael’s questions and ended up hanging up and not accepting any more phone calls. Michael then cancelled the order.
We contacted the credit card company when we first detected the fraud and they didn’t want to take the time to research it. In my opinion, they should have acted on it and there should be a better way for retailers like us to report fraud. Two months later, the credit card company alerted us that it was a fraudulent purchase. They then took the money back from the sale and we weren’t out anything because we canceled the order and didn’t ship the product.
What to Watch For
The best way to catch fraud is to pay attention to what people are buying. Make sure the order makes sense. If it doesn’t, then make some phone calls. You have every right to cancel an order that doesn’t feel legit.
Crooks are always in a hurry to get their stuff before they get caught. Watch for urgent orders of easily re-sellable items. We lost money once on some orders for nail guns. We had several orders and wanted them shipped next day air. It turns out they were purchased on stolen credit cards. The reason the fraudsters chose nail guns was probably because they could easily be resold.
When transactions seem out of line, do some research. We research the location to which the products are to be delivered, and we research the customer’s name. We can just Google or check their LinkedIn page. We can research where that person works, what they’ve done for a living, we can ask just a couple questions to help determine that it is a legitimate transaction. Then we call them up, say we’re just verifying the order, and if they can’t answer our questions we cancel the order.
While it can certainly be profitable to sell online (and it is becoming so for more and more traditional lumberyards) there can also be an incredible risk. Until our industry comes up with a way that people at home can use chip-read cards in a more secure way, we’ll continue to see these challenges. Online fraud is the new shoplifting, and we need to be just as vigilant in our online stores as we do inside our own buildings and lumberyards.