A company called creditcards.com is trying to combat Internet-based card chargebacks.
The firm, a Los Angeles independent sales organization that serves small on-line merchants, says it is building a private network to help merchants and consumers recognize one another on the Internet, thus reducing fraudulent card transactions.
Most clients of creditcards.com-which changed its name in February from Electronic Card Systems-are mail-order or telephone-order businesses with little sophistication about accepting credit cards on-line, he said. As a result, they have been experiencing "astronomical" chargeback rates, said Richard Gordon, chairman of creditcards.com and of a related consulting firm that bears his name.
Mr. Gordon said a private, closed-loop network is necessary because banks and technology companies have been slow to develop on-line authentication devices.
Mr. Gordon, who also heads two associations for electronic commerce professionals, said the Internet is "kind of like the wild West-anyone can get a merchant account today, and there's all kinds of software out there that does or doesn't work."
Starting in May, consumers will be invited to enroll in his company's network to protect themselves when making purchases on-line.
They will be asked to fill out a long questionnaire. In addition to asking for their Social Security and credit card numbers, it will request some innocuous personal data for use in confirming identity-mother's maiden name, for example, or favorite ice cream flavor.
After an on-line sale, the system would send the customer an e-mail confirmation offering a link to a customer service center.
Mr. Gordon predicts 20,000 merchants will be registered on the network by May.
"We are building a ubiquitous system," Mr. Gordon said. "It scares away the crooks, and it's not an invasion of consumer privacy because the consumer is asking us for additional security for their own benefit."
Visa U.S.A. says chargeback rates on the Internet are no higher than in the physical world, and its figures are at an all-time low.
Mr. Gordon said his company's breed of merchants is particularly vulnerable. There are certain Visa and MasterCard numbers that are valid for use but not issued to anyone, and there are "programs on the Internet where you can go if you're a crook and get 10,000 such numbers."
Some chargebacks-charges posted to a bill that a consumer disputes-come from people who do not recognize the name of the merchant or remember making the purchase, he said.
Mr. Gordon founded his consulting firm in 1985 and four years later was hired by a company that offered telephone entertainment services-psychics, horoscopes, and the like-and was experiencing severe chargeback problems. He called several hundred people who had disputed their charges, and he found that some did not recognize the transaction and that others routinely tried to get their bank to forgive small-ticket charges.
The work led him to found an independent sales organization that specializes in merchants that do business on-line and by telephone. All his merchants agree to a service called "click-on credit," which gives a complete refund for faulty goods and services.
"If it's delivered by bits and bytes and the transaction is completed, they have to give a 100% satisfaction guarantee," Mr. Gordon said.