Study Guide

Internet Security and Fraud Prevention
Who Is at Risk for Online Fraud
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26 March 2008 PayPal Certified Developer Program Study Guide
stolen credit cards. For the merchant, it is crucial to use products with built-in fraud protection
to prevent this sort of digital theft.
Chargebacks
Chargebacks occur when a cardholder disputes a credit card purchase. During such disputes,
the card-issuing bank initiates a chargeback against the merchant, retrieving the funds for the
sale from the merchant’s bank account. The bank initiating the chargeback is not required to
notify the merchant or the merchant bank. Proving that the disputed transaction was legitimate
can cost merchants significant time and resources, so keeping chargebacks to a minimum is
essential. Chargebacks can hurt a merchant’s bottom line by lowering its credit rating,
diverting resources to resolve the dispute, and siphoning revenue from lost goods and shipping
costs. The most common type of chargeback occurs when the customer:
z Did not receive the item ordered
z Did not receive the item believed to be ordered
z Had his or her credit card stolen and used by the thief
z Stole merchandise or services through the fraudulent use of a chargeback
Who Is at Risk for Online Fraud
Fraud can happen to any merchant at any time, and a single fraud incident can be enough to
put a merchant out of business. That said, some merchants are at greater risk for certain types
of fraud than others. PayPal has put together the following quick reference to identify some of
the higher-than-average risk categories.
TABLE 2.1 High Fraud Risk Quick Reference
Merchant Type Potential Risk
Merchants with vulnerable security defenses Criminals take advantage of sophisticated spidering techniques to
identify merchants with network vulnerabilities, and can then
break into your network to steal account access information for
hijacking or merchant takeovers.
High-visibility merchants Fraud attempts are higher for merchants who advertise heavily or
are in the news because criminals know that merchants who
experience high transaction volumes have less time to defend
against fraud.
Products/Services Sold Potential Risk
High-ticket physical goods that are easily
resold
These items, including luxury goods, computers, and other
electronic equipment, are most attractive to criminals.
Goods that can be downloaded from the
internet
The purchase of these goods doesn’t require physical address
information, making it easier for criminals to disguise a
fraudulent transaction.