The Christmas season is hectic for everyone – fraudsters included.
The busy shopping season is well-known in the retail community as the time of year when fraudulent transactions abound.
Criminals hope their fake credit cards will slip through the gates along with the masses of legitimate purchases being made by holiday shoppers.
Now TigerDirect.ca hopes to stop more of those fraudsters by collaborating with other retailers.
So the online merchant has joined an anti-fraud fighting community launched by Toronto-based Ethoca Ltd.
TigerDirect.ca is the biggest “e-tailer”, so far, to join the service, which enables online retailers to anonymously share transactional data so as to get the big picture of when fraud might occur.
“We’re tired of fighting fraud in a vacuum,” says Bruce Mathews, the vice-president of business development for TigerDirect.ca. “That’s the beauty of the Ethoca network, is it expands our knowledge of the fraud happening out there.”
TigerDirect.ca is operated by Systemax Services and is ranked as being the sixth most popular “e-tailer” in the appliances and electronics category by Internet tracking company Hitwise Ltd.
The Ethoca service, its promoters say, has a snowball effect – as more members join the community, the better the fraud-fighting capabilities.
So participation of a large online merchant – such as TigerDirect.ca – in the Ethoca “community” is viewed as significant. The online retailer also brings the TigerDirect.com and CompUSA.com properties to Ethoca’s membership list.
Companies joining Ethoca contribute their data for all transactions processed to a shared database. Ethoca collects the data from all members and identifies risky transactions across the community. Members also receive back a score indicating how risky a transaction is, and whether it should be manually reviewed or approved.
By collaborating, retailers can see fraud patterns they couldn’t identify from looking at just their own data, says Keegan Johnson, president of Ethoca.
For example, one online crook may be using 50 different fake credit card numbers at different Web sites, but using the same e-mail address at each site. That’s a pattern a single retailer couldn’t notice, but several working together could.
“Fraudsters are already collaborating,” Johnson says. “This is an opportunity to turn the tables on them.”
Online con artists typically work together via Web forums or Internet relay chat (IRC) servers. Credit card numbers are exchanged and sold, as are the tools used to steal them or create fake numbers.
Such a collective approach by retailers to fight fraud is a new concept for Mark Tauschek, senior research analyst at London, Ont.-based Info-Tech Research Group.
But he says, it seems like a good idea.
“It looks like they’re coming out of stealth mode with their first big-size retailer,” he says. “The challenge is getting a critical mass of e-tailers to jump on board.”
He says retailers will need to be convinced they can safely share data with a third-party, as releasing transactional information to a competitor isn’t something that most merchants are eager to do.
Then there’s the matter of protecting the privacy of your customer’s personal information, Tauschek notes.
TigerDirect did some due diligence before agreeing to become a member of Ethoca, Mathews says. A legal team did a review and company executives felt comfortable their data wouldn’t be shared with competitors.
Now the electronics retailer is encouraging others to join the network and improve the security benefits offered by the service. It will build a case study to demonstrate to others how working together could help stop fraud.
“Fraudsters share data all day long, while the retailers don’t share data,” Mathews says. “The power of the network is going to be the number of retailers in there. Not just the big ones like Future Shop and Best Buy, but the small ones too.”
The motivation for TigerDirect.ca and other retailers to fight fraud is clear. The company was losing thousands of dollars a week to scamsters, and even more is lost in the larger U.S. market, the vice-president says.
The company also dedicates people to do manual checks of suspicious transactions and IT staff to tweak its own system of algorithms designed to flag fraud.
Ethoca’s president is a former merchant with Toronto-based online gaming firm Cryptologic (now an Ethoca member).
When a transaction doesn’t require a person be physically present, there is an increased risk of fraud, says Johnson, adding that he wanted to create a community to stop the freeloaders.
“We take care of all the plumbing and dirty work, so it’s easier for the merchants to fight fraud,” he says. “Merchants can gain by sharing their experiences without sharing their data.”
If a consumer makes a purchase of a laptop on TigerDirect, all of the information submitted to the Web site will be shared with Ethoca. The service then processes the data in real time and provides a score that is given back to TigerDirect.
Based on that score, the retailer can let the transaction go through or have it checked by a person.
“The data can’t be used for any sort of marketing purposes or anything like that,” Johnson says.
The company says it has taken pains to ensure security and privacy compliance. It is PCI compliant and has been audited by partner Royal Bank of Scotland. A chief governance officer is tasked with ensuring the company is compliant with privacy rules in different jurisdictions.
Ethoca’s data is hosted in a British Telecom facility in Ireland. Consumers give consent to have their information shared for anti-fraud purposes when they register with the member merchants.
“They key principle that keeps coming up is basically end-user consent,” Johnson says. “The merchants we deal with will have something in their terms and conditions.”
The company started up three years ago, but 40 of its 50 members have joined over the past year. Now with a bigger merchant on its roster in TigerDirect, the community could attract some other big players. The retailer joins the likes of Bingo.com and World Wrestling Entertainment Inc (WWE).
“The other members are small potatoes in terms of transactions,” Tauschek says. “The WWE doesn’t do a ton of transactions on their Web site, I don’t think.”
For TigerDirect.ca, the holidays are around the corner and the sooner Ethoca’s service is implemented, the better.
“The fraudsters are out in force during the holiday season,” Mathews says. “We have so many more orders flowing through the system that it’s harder for us to look at the ones we really need to look at.”
Hopefully it will be in place before Boxing Day events, he adds.
