Best Buy Tackles Online Payment Fraud

Shoppers who make a purchase on BestBuy.com (NYSE: BBY) will encounter a new payment engine designed to speed the sales process and minimize fraud.

Developed by ClearCommerce, the payment processing and security software will provide real-time credit card authorization, as well as payment processing, for electronic checks and automated clearing house (ACH) payments.

Fraud Prevention

Gartner analyst Avivah Litan told the E-Commerce Times that Best Buy likely chose to implement the ClearCommerce engine, which is used by more than 40,000 merchants including e-tailers PetSmart and Sony Online, due to concerns about fraud.

"They fall into the category of a site that is highly prone to fraud attacks because of the nature of the merchandise they sell, and they are likely to move toward delivering electronic content like CDs, so they needed a vendor who was very strong in fraud protection," Litan said. "ClearCommerce has always been a leader in preventing fraud."

The ClearCommerce engine guards against security breaches with a feature called FraudShield, which double-checks both e-mail and physical addresses, locks out users who repeatedly try to make purchases using suspect information, and uses a series of other rules to screen transactions.

Improved Flexibility

Preventing fraud is one thing, but doing so without inconveniencing customers and losing potential sales is another. "When you're fighting fraud, you don't want to hold up all the sales that look suspicious," said Litan.

According to a Gartner study of companies that sell more than 25 percent of their goods or services on the Internet, 7 percent of online sales are rejected for potential fraud, but just 1.13 percent are actually fraudulent. The ClearCommerce engine can minimize the number of valid transactions that are rejected, Litan said.

With ClearCommerce, Web merchants like BestBuy.com are able to choose whether to authorize a credit card at the time of the sale or just before shipping, which means that buyers can complete the transaction even if there is a problem with the sale.

The Web site can then send a message to the buyer asking for additional identifying information such as a mother's maiden name, or requesting that the buyer call customer service to complete the transaction. "It's all about the consumer experience," said Litan.

Increased Sales

The growth of the site may also have something to do with the choice. Gartner analyst Kenneth Kerr said the ClearCommerce engine is a viable solution for high-volume e-tailers with a monthly Web transaction volume of more than 10,000, which is ideal for BestBuy.com.

"Best Buy needed a proven, reliable payment processing solution that would scale with our business," said Dan Lagermeier, director of Finance for Best Buy. "ClearCommerce provided us with a software solution that supports BestBuy.com's growth."

Austin-based ClearCommerce has been delivering payment processing systems since 1995. The company has received $54.5 million in funding from investors including Hewlett-Packard (NYSE: HPQ) (NYSE: HWP), Intel (Nasdaq: INTC) Capital and VeriSign (Nasdaq: VRSN) (Nasdaq: VRSN).