Fraud Begins to Take Its Toll on High-Potential Digital Markets

E-commerce fraud is beginning to make itself felt in the markets for voice-over-IP (VoIP) services and in digital-content downloads, both of which are high-potential markets that many processors are counting on for transaction growth, according to Retail Decisions Inc., the U.S. unit of Retail Decisions PLC, a provider of online transaction processing and fraud-management services. “VoIP is the big trend” in fraud these days, says Xavier Kris, managing director for ReD USA. With VoIP, consumers and businesses buy prepaid minutes of phone service delivered via the Internet. Because the service is typically cheaper than conventional wireline phone service and carries functionality such service can't offer, it is becoming increasingly popular. Kris cites estimates that the number of households subscribing to VoIP will balloon from 400,000 currently to 11.9 million by 2009. But because the service is typically paid for on a prepaid plan funded by a credit card, it is subject to the same fraud any other card-based e-commerce transaction is?only perhaps more so, Kris says, adding he's heard of attempted fraud rates ranging from 5% to 15% of dollar value. “Some acquirers just won't take VoIP,” he says. A typical consumer VoIP plan, he says, might be priced at $29.95 a month for unlimited usage. The burgeoning market for digital content, in which consumers buy songs, games, ring tones, and other electronic content for prices that range between 99 cents and $5 each, is also attracting fraudsters, Kris says, despite the market's pint-sized price tags. Fraud-minded people are attracted to downloads, he says, because the product is delivered by content providers immediately, without the delay between order and shipment that may allow other e-commerce merchants to investigate transactions. “There's no shipping address, and immediate download of the product,” he says. “You can't wait a day to check that the funds are in place.” Here the rate of fraud is hard to pin down because content providers are reluctant to discuss their losses, Kris says, but he estimates it is already running parallel to or somewhat higher than the rate of fraud seen in general e-commerce.