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Selling a POS Risk Prevention Solution

By Patty Colby

All merchants in this day and age undoubtedly are sensitized to card fraud; however, they should really focus on the larger issue of risk prevention.

Consumers are highly attuned to credit card fraud given the intense spotlight the topic has received in the national media. The June 2005 disclosure that hackers had penetrated CardSystems Solutions Inc.'s systems, compromising nearly 40 million cardholder accounts, pushed card fraud to the front page of everybody's newspaper.

However, what most concerns consumers is the threat of identity theft and the trauma involved in trying to repair a credit history. Government regulation and banking practices financially protect consumers when it comes to misuse of their cards, but the damage caused by identity fraud is painful, time-consuming and costly.

Merchants suffer the most from fraudulent use of credit cards. They usually must absorb both the cost of the actual chargebacks along with fees for processing those chargebacks. A June 21 article in "BusinessWeek" reported that illegal credit card purchases represent "just 4.7 cents for $100 worth of purchases, well down from a high of 15.7 cents in 1992."

This may ease consumer fears somewhat, but the data belie the fact that the volume of card charges has increased dramatically over that same period along with an increase in chargeback penalties.

When consumers make purchases, the first line of defense is the clerk comparing the signature on the back of the card to the signature on the receipt. This defense is about as effective as the Maginot Line was in preventing the invasion of France during Word War II.

First, it requires clerks to compare signatures, which any shopper knows is hit or miss at best. Second, it requires that signatures be legible. I don't know the last time you looked at the backs of your cards, but my signatures are fading by the day. This step presumes that a clerk can make a legitimate comparison, another dubious proposition.

Although holders of signed bankcards technically aren't required to submit personal information, clerks might ask to check a photo ID, such as a driver's license. If somebody has gone to the trouble of obtaining fraudulent credit cards, odds are they will also have some type of fake ID to back it up.

Merchants selling large ticket items, such as jewelry, cars, carpeting, high-definition televisions and any good that readily can be resold "on the street," face substantial liability from card fraud even if the percentage of total sales as related by "BusinessWeek" is relatively low.

If not covered by insurance, chargeback fees and lost merchandise will come right out of merchants' often razor thin profit margins. As a merchant level salesperson you have the opportunity to arm merchants with tools to catch this type of fraud before it happens. VeriFone works with Intelli-Check Inc. to provide merchants with POS applications that validate that the person presenting a credit card for payment is the person whose name is on the card.

Intelli-Check developed a patented technology to verify the validity of all currently encoded state and provincial driver licenses, state-issued ID cards and military IDs.

This offline application resides in the terminal and requires the clerk to simply swipe the license. It reads, analyzes and verifies information encoded in the bar codes and magnetic stripes on state and provincial driver's licenses, ID cards, military and government IDs, including those that conform to the standards of the American Association of Motor Vehicle Administrators, American National Standards Institute and International Organization for Standardization.

This type of application is also valuable to restaurants and bars selling liquor (and to stores selling liquor, tobacco and lotteries) where age validation is a key liability. The solution will determine if a presented ID meets the minimum age requirement for alcohol and tobacco purchases and if it has been tampered with or has expired. These days fraudsters reproduce driver's licenses almost as easily as they forge signatures, but it's not as easy to create validated magnetic stripe information.

There are other opportunities to sell merchants a risk prevention value-added application or suite of applications. Quick service restaurants, for example, with extremely high staff turnover rates, are ideally suited for a solution that validates employment application information. Automated Verification Systems Inc. offers VerifyPOS, which verifies a potential employee's Social Security number and runs a national criminal and motor vehicle background check.

Employers minimize exposure to liability and other claims by conducting thorough reference and background investigations of job applicants. POS background screening solutions help reduce liability, employee turnover, internal theft and turnaround times for hiring decisions.

Another example of a risk prevention application is The Return Exchange's Verify-1 retail merchandise return authorization system. With Verify-1 merchants enforce a consistent return policy while monitoring consumer return transaction patterns to identify fraudulent and abusive customers.

This eliminates inconsistencies and errors in merchandise return policy enforcement, reduces merchant losses, and helps to identify fraudulent and excessive merchandise returns, which result in billions of dollars of losses annually.

Risk prevention applications are well suited for dealing with increasing problems of fraud that merchants have to deal with today. To sell such solutions, understand the pain points of customers and work with a full portfolio of value-added applications that will help relieve that pain.

Patty Colby is Senior Director of VeriFone's North America Corporate Strategy Development. She manages the company's strategy regarding all Value Add Program initiatives. E-mail her at .

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