E-Commerce Fraud

As internet use develops, both businesses and consumers are utilizing this opportunity to achieve their goals. Some of these goals include expanding into greater markets for businesses and shopping online for consumers. These online transactions now encompass much more than the traditional online banking. They represent the billions of merchants and consumers whom take part in online transactions twenty-four hours a day. With this, credit cards and online transactions are quickly becoming an important legal issue. The different areas include: types of payment methods and their components, legislation, and online security such as encryption software. All parties must understand this complex scenario to successfully navigate and participate in any online transactions.

With consumers, businesses, and governments transacting business on the internet more than ever, various electronic payment methods have arose. The most widely used payment method is credit cards, which account for eighty percent to ninety percent of internet payments . Debit cards are also another major medium of payment. Variations such as electronic money or e-money and stored value cards have added features beyond the normal credit card and debit card. The goal of these variations of electronic payments has been to make purchasing simpler by allowing the transfer of cash value to a card . Unlike the debit card that deducts money from an account, the card itself represents the account. For example, retailers are replacing the traditional gift certificates for these stored value cards because they allow more purchasing options. They can be used either online or offline. Some stored value cards can be recharged with cash while others are disposable. An example of a popular value card is the American Express Gift card which can be used to make any purchases at vendors which accept American Express.

Some of the newer internet-based payment systems have e-wallets where value is transmitted through computers. E-wallets allow the holder to make small purchases both online and offline such as a meal. The payment is deducted from the cardholder's online account immediately. E-wallets are typically set up in conjunction with a credit card or a debit card. When they contain an embedded computer chip, they are known as smart cards . One percent of the smart cards issued were in the U.S., while eighty-five percent issued were in the E.U . The two major electronic payment systems between businesses are wire transfers and letters of credit.

The main benefits of these electronic payments systems are efficiency and cost savings. "Estimates are that processing payments electronically saves $1 per transaction over processing paper checks" (Hiller 244). Consumers are also taking advantage of online banking and bill payments as this has seen increases in use .

The credit card processing system is "based on trust and is designed to protect everyone involved:" merchant, issuing bank, and cardholder. AA Access Credit Card Company outlines the five basic components in an efficient credit card processing system . First, the credit card issuing bank. Second, is the consumer. Third, the merchant services account. Fourth, the acquiring processor/ acquiring bank. Fifth, the merchant bank. These five components apply to the different ways in which a credit card may be used as payment: swiped through a credit card terminal, keyed in with a pad, accept the customer's credit card number over the phone, or real time card processing. However, the difference between the types of payments is the various levels of security.

"83% of Internet users said their main concern about online shopping is payment security 6)." The explosion of e-commerce and the option to purchase goods and services over the internet has increased the convenience of shopping. Companies like Paypal, Paysystems, and Digibuy are all third party providers that handle credit card transactions and set up security measures to protect the consumer's information. Still, what has not changed, is the public's uneasiness of entering their credit card information online. The concern of privacy and cyber crime has created large barriers for internet businesses to sell online.

Thousands of credit card files are stolen by crackers that use the information to obtain cash, purchase goods, or blackmail companies for various reasons. The media constantly warns consumers to be careful and not trust personal information on the internet if the site does not guarantee secured information. Most websites show their security measures in the form of a small lock symbol in the bottom right hand corner of the webpage. This shows the site is secure and encrypted by the host's servers. Recently the New York Times reported an anonymous intruder from Russia was blackmailing CD Universe for $100,000 because he claimed to have obtained 300,000 customer credit numbers from the company. CD Universe's refusal to pay the ransom caused the cracker to retaliate by releasing some of the credit card files on the internet. He also claimed that he had used some of the credit card numbers to obtain money for himself.

Internet companies provide a variety of payment methods. The two most common methods include payment through the website or calling credit card information over the phone. Amazon.com and Dell give their consumers these options and the trend for them has been that consumers will order and customize their products online, but provide their credit card information over the phone. The question we ask is; with increasing rates cyber crime, how are internet companies going to shift consumers into trusting the security and privacy of their credit card payments online?

E-commerce companies must ensure and update systems continuously to protect credit card files. Companies are managing their confidential files by data encryption and the assistance of third-party providers. "Encryption of data is the only way to ensure that sensitive information, such as credit card details, is secure when transmitted across the public internet. Determined hackers will often be able to intercept data, but if properly encrypted, they won't be able to decode it and use it (Harvey, website)." The two main forms of encryption available are symmetric and asymmetric. The difference is that symmetric uses the same key to decrypt the encrypted information and asymmetric uses a different key to decrypt. Asymmetric encryption is also the encryption used to create digital signatures, which are used to authenticate the user. In the recent example with Dell and Amazon, the companies use a system known as Socket Science. Socket Science uses Secure Socket Layer technology to encrypt consumer information such as name, address and credit card numbers. Microsoft Internet Explorer