Comment: Card fraud should not deter retailers from expanding their online operations

This is a great shame because when you look at the slowdown now being experienced on the high street it is clear that the internet represents one of the few bright spots within the retail sector.

But there is no escaping the fact that the levels of fraud online are pretty scary. For 2007 fraud perpetrated over the internet, phone and mail order increased by 37 per cent to £290.5 million compared with the previous year. This means it now accounts for just over half the £535.2 million of total fraud committed on UK cards.

Such is the scale of online fraud that we know of at least one major UK retailer that scaled back its internet operations as a result of the hit it took when it opened up an overseas store.

It took the decision to launch into Ireland on the basis of a sound business case; the language was the same; it already had high brand awareness among the locals; and the delivery channel was relatively short.

However, it was totally horrified by the levels of fraud that it encountered immediately after it opened up its online store's virtual shutters. It had not predicted that the levels of internet fraud in Ireland were going to be much greater than it had been used to in the domestic market. As a result it quickly shut up shop and in so doing closed off a potentially lucrative source of new revenue.

While this shell-shocked retailer saw the high fraud levels as a reason not to continue with its online store in Ireland we believe that since the business case remained solid the company should instead have sought to adapt its operations to accommodate the differences it experienced in this new market.

This could have involved beefing up its anti-fraud systems through the use of any one of the number of systems available in the marketplace. Retailers could also adapt their businesses by accepting other payment methods such as local post-paid solutions, alternative payments like PayPal, and pre-paid products including Ukash.

The advantage here is that retailers can offload their risks as they are assured of the payment prior to shipping the goods. This means retailers will not be liable for any costly 'chargebacks' from their bank as a result of goods being delivered to people who were not the rightful owners of the payment cards, and cardholders finding their statement shows goods that they did not purchase.

And don't think the chargeback is the only cost of fraud to retailers. There is also the standard transaction fee that they still have to pay, the stock shrinkage caused from the goods having actually been delivered, and the costs associated with managing fraud which can include software licenses and all the other overheads such as personnel and administration.

In our view retailers therefore have to tailor their online businesses to mitigate these costs because the alternative is to miss out on the great opportunity that the internet provides. And we are in no doubt that it would be a sorry state of affairs if more UK retailers were forced to limit their online horizons because of fraud.

Mark Chirnside, chief executive officer, Ukash