Credit cards pose an increasing risk to trade

Despite being encouraged to accept credit cards, creating an audit trail of paper as part of due diligence, there seems to be little protection for those accepting credit card payments when something goes wrong.

The Association for Payment Clearing Services (APACS) has confirmed that in the case of payment being accepted remotely – say via the Internet or on the phone – the dealer is liable for any loss where something goes wrong, regardless of the checks they make to establish the bona fides of the customer.

If the customer is present when the transaction takes place, then the dealer should carry out the usual checks, such as matching the signature on the sales docket to that on the card and gaining authorisation. APACS say that, providing the dealer can show they have carried out these checks, their bank should honour the payments even if it later transpires that a fraud has been perpetrated.

However, in reality, some banks do not follow this policy. Instead, they again hold the dealer responsible, whether they have followed the guidelines or not – a policy that surprised APACS.

The threat to the trade has increased dramatically over the past two years. APACS’ own research showed that with the decline in the use of cheques, card and debit card fraud increased in value by 30 per cent in the UK from 2000 to 2001.

Two of the biggest misconceptions regarding credit card payments concern address checks and authorisation. Firstly, a dealer may only check the address with the bank if the transaction is being completed remotely and this can often be a longwinded and complex process for which an extra fee is charged.

Secondly, authorisation merely confirms that there is a credit facility to cover the bill and there have been no reports of the card in question being stolen. It does not guarantee payment, however.

A commitment by the banking industry means that by 2005, cardholders in face-to-face transactions will authorise payments by keying in a PIN number rather than signing a sales docket, which should help reduce risk, but remote transactions are facing an increased risk of fraud. This is because the tightening of procedures in the UK is driving the criminals abroad. APACS calculate that more than a third of card fraud now takes place abroad, 19 per cent in the US, 17 per cent in France and 16 per cent in Spain, a factor that risks damaging overseas trade. In 2001, the fraudulent use of cards in remote transactions cost £95.7m.

APACS are advising dealers to minimise the risk of losing out by arming themselves with a retail education pack. These can be ordered online at www.cardwatch.org.uk or over the phone on 08705 500005.