Furniture retailers skirt credit card fraud on Web
By Brian Carroll -- Furniture Today, February 24, 2003
High Point — Because of the nature of the product and the transaction, furniture has avoided the plague of credit card fraud that is hampering e-commerce overall. But it is a concern.
Internet merchants say credit card fraud costs them more than $1 billion a year, and the figure is growing. Larger retailers on the Web have joined forces to help stem the fraud tide and assuage online shoppers, creating a "neighborhood watch" program called the Internet Merchant Fraud Roundtable.
"Credit card fraud and theft identity are increasing at alarming rates," said Bob Davidow, co-owner at Benchmark Home Furnishings in Kansas City, Mo., and BeHome.com on the Web. "There are no permanent solutions. As soon as we plug one hole, we find a new one. It's a constant battle with high levels of vigilance required."
BeHome's staff gets monthly training to review the latest techniques for uncovering fraudulent transactions and to learn how to spot potential problems.
"We are catching a large number of the customers who attempt to provide us with stolen credit information or false identity," Davidow said. "Awareness of what to look for and quick action prevents large losses."
Merchants have plenty of incentive to attack the problem. Although an individual cardholder's liability is usually limited to $50 or less if someone else uses the account fraudulently, merchants typically are obliged to reimburse credit card issuers for the actual cost of the goods sold.
A down economy not surprisingly yields more attempts to victimize retailers, and Benchmark and BeHome.com both have seen spikes in attempts at credit card fraud. The training, however, has prevented a commensurate rise in actual losses.
"The Internet is a more difficult side of the equation due to the fact we do not have face-to-face transactions with the credit documents," Davidow said. "We have to establish several check points to validate the data given to us."
At FurnitureFind.com, a similar series of checks and balances has minimized losses due to fraud, for the most part, said Chairman Steve Antisdel.
"Our detection systems are good enough that I know of a case where we've been instrumental in setting up a 'sting' to nail someone attempting to perpetrate a fraud," he said. "The credit card companies appreciate the help."
The nature of the product also is a deterrent, Antisdel said. Electronics and jewelry are much easier to fence or unload at a pawn shop than furniture. And the delivery cycle for furniture is more than most credit fraud perpetrators — not to mention many consumers — are willing to endure.
"It appears crooks prefer instant gratification of their criminal urges," Antisdel said.
Although FurnitureFind.com is a Web retailer, actual transactions occur over the telephone. This acts as a preventive, he said.
"We have pretty stringent systems and a lot of experience with remote sales," Antisdel said. "It's another example of a cumulative learning curve in the organization and of (having) good people. Also, we talk with every customer. ... We get personal."
Both Davidow and Antisdel reported attempts involving identity theft this year.
At Bookouts, FurnitureFind's bricks-and-mortar sister company, a "customer" stole someone's identity and unsuccessfully attempted to use the credentials to falsify a financing contract.
Merchants that do a high percentage of their business in special-order sales are seeing significantly lower rates of fraud.
Frontera Furniture in Houston, for example, which sells in a pair of brick-and-mortar stores and on the Web, requires down payments for special orders. It cuts down on fraud because bad information can be spotted early.
"If the down payment is good, we've found that the final payment is almost always good," said Harvin Moore, Frontera chairman. "We had no major cases of fraud in any channel in the last year, and I don't think we've had a major fraud ever online."
Moore also attributes the low fraud rate to the quantity and quality of communication with consumers.
The issue of identity, however, will remain key for the Internet, Davidow said.
Software developers are working on solutions, such as a new product from Adobe that allows certified signatures to be attached to transaction documents. CardCops, a credit card fraud watchdog company, has created a database of what it believes are stolen credit cards. Consumers can check CardCops.com to see if their numbers have been stolen, and the company is planning a database for merchants as well.
