Study Guide

PayPal Certified Developer Program Study Guide March 2008 23
2
Internet Security and Fraud
Prevention
E-commerce has become an essential sales channel for businesses both domestically and
internationally. Unfortunately, e-commerce has also become an attractive revenue source for
criminals who perpetrate internet fraud. You need to be aware and informed so that you can
take steps to protect your business. Security for online payments is everyone’s responsibility.
In this chapter, you will learn about:
z Why every merchant should be concerned about internet fraud
z Liability for internet fraud
z Internet fraud: What it is and how it happens
z Who is at risk for online fraud
z How to reduce your exposure to fraud
z What banks and credit card associations are doing to prevent online credit card fraud
z What PayPal is doing to protect your business against fraud
z Providing disclosure to your customers and compliance with the Payment Card Industry
(PCI) standard
z PayPal® Fraud Protection Services
Why Every Business Should Be Concerned About Internet Fraud
Every merchant is at risk for fraud. When doing business online, you should be particularly
aware of fraud.
Offline merchants can see who they are doing business with, look at their customers’ credit
cards, and watch them sign the receipt. In the online world, however, customers never sign a
paper receipt, so authentication becomes a challenge. Moreover, in the online world, hackers
can break into your network without your knowledge and steal money, products, and sensitive
information. They can also steal customer identities and commit crimes against other
merchants, using your business as a launch pad for further crimes.
Internet fraud is also more difficult to detect than in the brick-and-mortar world. Criminals
who break into a physical store are much more visible than criminals who break in through the
web and erase their footprints. Additionally, in the online world, criminals have multiple
access points for break-ins, because the merchant store is networked internally and to other
businesses.
Because of these vulnerabilities, total losses from online payment fraud have steadily
increased. According to CyberSource’s 2006 Online Fraud Report, an estimated $2.8 billion
USD was lost to online fraud in the U.S. and Canada in 2005. The Nilson Report, a payment