Editor’s note: This post originally appeared in The Paypers premium newsletter (Vol. 6 Issue 12, 2 Dec 2013)
With a constantly growing e-commerce and m-commerce market across Europe and a range of possibilities to easily set up online businesses, many small business owners are confronted with a couple of challenges.
One of the major problems they face is payment fraud. While existing fraud protection services become more and more successful in providing sophisticated solutions for big e-commerce companies (73% of fraud attacks ended without any financial loss, according to the AFP fraud survey 2013), they often leave SMEs out in the cold – simply because they do not provide enough volume to be particularly interesting.
SMEs at risk
At the same time, SMEs are even more at risk. While in a credit card transaction with the customer present, the credit card issuer is liable in case of fraud. This liability shifts completely for card-not-present transactions. So when the same fraudulent purchase is made online instead of in a store, the merchant must make restitution from his own account. Many small merchants don’t know about this small, but crucial distinction. Also, it is a lot easier for fraudsters to get credit card information through skimming, phishing and use them on poorly protected small online stores than trying the same with the big players or making a transaction in a physical store.
Fraudsters know all this and start to focus on SMEs. To make matters worse, SMEs are not only more convenient, they’re also the most vulnerable. They tend to have smaller capital backings and once they are a target of fraud, it often leads to the ruin of otherwise solid companies (in 2012, the typical size of fraud loss was USD 20300 per case, AFP Fraud Survey 2013). In this light, the growing worries about payment security and fraud for SMEs are completely justified!
What to expect in the future
My vision for a payment and fraud security solution looks like this: Merchants can offer all online payment types (credit card, direct debit, online wallets etc.) with the same fee attached to each type and the entire transaction risk is taken away from the SMEs by the payment solution provider. For such a simple, risk-free and seamless solution, companies would be willing to accept rates considerably above the current standard rates.
Whoever first delivers an easy fraud risks solution for small businesses will transform the payment processing market permanently. There will not be a need for SMEs to wrap their heads around fraud risks or to decide which payment types they want to offer, or how much cash they should hold back to provide for potential fraud loss anymore and they can go back to what they do best: Offering their products and services.
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