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ECommerceTimes.com

Invisible Cash: The Secret Life of Online Money

By Lou Hirsh
Apr 10, 2002 5:07 PM PT

In the realm of e-commerce, credit cards rule. But the distant relationship between buyer and merchant, combined with the anonymity enjoyed by potential wrongdoers, makes the processing job tougher than it would be for a brick-and-mortar purchase.

Invisible Cash: The Secret Life of Online Money

That is why most e-commerce sites scrutinize customers when they buy something or conduct any business in which money or identifying information changes hands.

Behind the scenes of almost any online purchase, invisible investigators and bouncers are hard at work, ready to toss out any transaction -- or the buyers themselves -- if a red flag is raised. Sometimes these software secret agents are just on patrol for typographical errors. But they are wary of anything that looks out of the ordinary, and no deal goes down without their say-so.

This high-tech help, in the form of authentication and fraud-detection software, springs into action once a customer clicks the "Buy Now" button.

Step This Way

While the user looks at a "please wait" message, according to GartnerG2 research director Geri Spieler, his or her credit card information is undergoing its first security check.

The e-commerce site's card-processing company first subjects the data to a fraud screening, checking the card number against lists of fraudulent names, numbers of cards that have been reported stolen or missing, and customers banned from using credit cards because of non-payment or exceeded credit limits.

Technology allows this process to occur in seconds, because users have come to expect fast action when conducting Web purchases. Spieler said sites must decide on their own how to balance speed and precision in this preliminary check.

"Some sites have even more robust screening, but it generally takes longer for credit information to be cleared," Spieler told the E-Commerce Times.

After the site conducts its own fraud screen, the user's credit data goes to the bank that issued the credit card. On that end, Spieler said, credit card companies use security firms like First Data, which offer tools that can check the purchaser's credit limits or bank account information (if a debit card was used).

You Want It Where?

While the credit check takes place, other screeners simultaneously are looking into shipping information input by the customer. Gene Alvarez, vice president of e-business strategies at Meta Group, said many e-commerce sites employ specialized software that verifies addresses.

Alvarez said the site must confirm that the item is not being shipped to a bogus location and that the customer did not inadvertently enter the wrong address.

"Just a couple of numbers transposed is going to significantly increase the site's time and cost to get the shipment to you if the address is wrong," Alvarez told the E-Commerce Times.

Other backstage agents make note of the purchaser's point of origin and the time of day at which an order is placed. This information could signal, for instance, that someone is trying to buy a product that is illegal to ship outside the United States.

"For example, it is illegal to sell antivirus software to Iran," Alvarez said. "There is the concern that countries would be able to access the coding and use it against us."

Okay for Now

Because all this detective work must be accomplished within seconds, Gartner's Spieler said most sites issue what is considered to be instant but provisionary clearance. That clearance allows the transaction to go through but reserves the right to halt the process if a red flag arises after the online purchase is completed.

The site can phone or e-mail buyers later to let them know about any issues that must be addressed before shipment can proceed. If no alarms sound, the customer's order moves on to the site's back-end fulfillment operations.

Alvarez said many sites signal an order's arrival at the fulfillment stage by sending an automatic e-mail to the customer who placed the order. Some e-tailers provide additional points within their fulfillment operations that let users track progress at designated stops in the merchandise's journey -- often in real time -- via Web or phone.

On to the Bill

Once behind-the-scenes screeners have done the heavy lifting on the money side, experts said, a transaction proceeds much as it would in an offline purchase. Information is forwarded from the e-commerce site to the credit card company and the charge appears on the buyer's monthly statement.

At small-business commerce sites as well as auction portals where many buyers and sellers come together, a large portion of screening duties are carried out by such companies as PayPal and ProPay, which deal with authentication and security.

Spieler said such services provide a needed function by giving order to the transactions of businesses that otherwise could not afford the services of a credit card-processing company.

She noted that digital detectives at both large and small e-commerce sites face additional challenges down the road. One hurdle is dealing with hard-to-track credit cards, such as those issued by off-shore banks or backed by other, hidden sources that potentially could be used to make illegal purchases.

However, as these sleuthing software programs evolve, e-commerce firms are on track to keeping their customers' cash secure as it travels through the electronic payment process.


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