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http://www.businessweek.com/stories/2000-09-10/where-plastic-isnt-so-fantastic

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Where Plastic Isn't So Fantastic


Frontier -- In Box

Where Plastic Isn't So Fantastic

If you're still not selling online, count your blessings. Web merchants pay twice as much in credit-card association fees as other retailers. Why? For starters, they suffer 10 times as much fraud, says Gartner Group. And fraud hits small businesses the hardest because the only online verification software they can get is designed for big companies, says Gartner's Avivah Litan. When a customer tries to buy something, these programs spit out a risk score on each transaction. But someone still needs to evaluate whether or not to let the sale go through--something big companies use custom software to do automatically. And if over 1% of your sales are consistently fraudulent, you can be slapped wtih fees up to $25,000 a month while the card company investigates. "There's no easy answer," says Litan. Buyers like credit cards, but sellers are better off with alternative systems such as PayPal (www.paypal.com), an e-mail-based service from Internet bank X.com. The safest way? It's not pretty: Get paid with a check, and ship goods after it clears.

Maybe cash is king after all.Edited by Kimberly WeisulReturn to top

TABLE

Net Effect

ONLINE SELLERS FACE HIGHER COSTS THAN TRADITIONAL STOREOWNERS

ONLINE

STOREFRONT TRADITIONAL

TRANSACTION COSTS 3.5% OF SALE 1.5% OF SALE

PERCENT OF TRANSACTIONS 0.93% 0.06%

THAT ARE FRAUDULENT

WHO COVERS LOSSES MERCHANT CREDIT CARD

FROM FRAUD ASSOCIATION

COST TO RESOLVE $40 $10

A CHARGEBACK

DATA: GARTNER GROUP

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