Internet merchants fight back on fraud

European merchants have no such compunction about making card holders jump through hoops.

In fact, many European banks have gone a good deal further, issuing personal card readers and "smart" credit cards embedded with tiny computer chips. Customers swipe the card through the reader and enter a PIN number, prompting the reader to randomly generate a second PIN number that the customer provides to the merchant.

Bruce Rutherford, a vice president at MasterCard International Inc., expects smart card technology to eventually migrate to the United States.

But there are low-tech ways to fight fraud, too.

EBags.com, a retailer of handbags, briefcases and luggage, calls the customer before shipping any order of more than one item.

Mike Aquilina, director of e-commerce at Fujitsu Computer Systems Corp., the computer-making subsidiary of Fujitsu Ltd., said a customer once claimed he never received the computer he had ordered online. Aquilina called the customer and promised that an FBI agent would be at his house to investigate. Within an hour, the customer called to say he had gotten his computer.

"The general assessment from vendors is that chargebacks are decreasing, not because the thieves aren't trying, but because the vendors have built up elaborate systems to try to protect themselves," Aquilina said.

Fraudsters especially love targeting Internet jewelers, because jewelry is so easy to fence. Pornography sites and electronics merchants are also hit frequently.

When Ice.com was founded in 1999, 15 percent of its sales were charged back. The jeweler now uses a variety of fraud-reduction tools, including software that detects the physical location of the computer from which a product is ordered. Although chargebacks now constitute less than a quarter of 1 percent of sales, the company still fights every one.

"We do get some chargebacks," said Shmuel Gniwisch, Ice.com's chief executive. "There are some people who have outsmarted the system, but it's an education, and they taught us how to get some other loopholes plugged. They have a lot of time to do this, and they are going to sit there and try to outsmart you."

For those fraudulent purchases that do slip through, merchants are increasingly turning to companies like RMS, which last year enjoyed a 42 percent increase in the volume of credit card chargebacks it handled.

The Bethlehem-based company, which has 35 offices in the United States and abroad, has dealt with some goofy online disputes.

A man once tried to reverse the entire cost of his Mexican vacation because he couldn't get a lounge chair next to the hotel pool. Another tried to reverse the cost of a trip to Hawaii because the hotel room came with a queen-size bed, not a king.

"You would be surprised," RMS spokesman David Caruba said, "at how many companies in the past would eat something like that."

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