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An Answer To Credit Card Fraud? 13 July 2000 Edition
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Some time ago I came up with a good idea for reducing, if not eliminating, credit card fraud on the Internet.

Unlike many other ideas that have gone before it, this system doesn't rely on any extra hardware at the user's end -- such as card-swipe readers, fingerprint devices or iris scanners.

The technology is very sound and not particularly expensive to implement; the business model involves taking a small percentage of every transaction; and the marketability is massive.

From a vendor's perspective, the prospect of losing money from people fraudulently using stolen or made-up credit card details when buying goods or services from your website is a sobering one. Already here in NZ we've had instances where one vendor has lost tens of thousands of dollars through a credit card fraud -- enough to put them off selling over the Net.

Clearly all the parties in an online transaction would be eager users of such a system:

The Cardholder would find themselves far less likely to get unexpected entries on their credit card statement and then have to go through the onerous process of disputing the charge with their bank and getting it reversed. In fact, in some cases, banks have actually advised customers to cancel a card because someone has fraudulently used it to subscribe to a raft of pornography sites and it's simply impractical to keep reversing the charges -- that's a cost that must be born by the cardholder.

The Vendor would reduce the cost of doing business on the Net -- quite significantly in some cases. Reports I've seen indicate that as much as 5% or more of transactions submitted to some sites are fraudulent. That 5% loss comes out of profit and with margins as narrow as they must be when trading in an environment as cut-throat as the online world then that can be the difference between black and red ink on the balance sheet.

The Banks, while seldom out of pocket as a result of such fraudulent transactions, would still be very happy to see any system that improved customer confidence in using their credit cards online.

Now the problem: How best to turn such a good idea into a profit?

Traditionally one would go out, find an investor and create a "dot com" startup. Indeed, if this were the USA then that's exactly what would happen and, since this is an idea that provides one of the highly regarded "infrastructure services," and as I already have a good track record in turning good ideas into practical realities, I expect that investors would be rather thick on the ground.

If one were to try to do this here in NZ however I have little doubt that it would still be an exercise in frustration and disappointment. I have yet to see any indication that the local investment community has the savvy or the money to back such an idea to its full potential.

Another alternative would be to sell the idea to the banks -- but then again, we all know that banks are large, lumbering monoliths who still can't reliably wire transfer $100 from NZ to the USA (or vice versa) without it disappearing into the ether for several weeks on occasion. I suspect that touting the idea to a bank would be just another exercise in frustration.

And here's another important consideration -- at this stage all I have is an idea and a business plan. Ideas are almost impossible to protect without spending a huge fortune on global patents. In the new economy the best way to protect an idea is to move more quickly than your competition to create a new market and then dominate it to such an extent that competitors will never be able to steal more than a tiny amount of your market-share.

One of the hallmarks of a smart new-economy investor is their ability to think on their feet and make quick decisions. Do we have any such investors in NZ?

Suffice to say that this idea is one of the key opportunities I will be focused on if I decide to choose Dubai's Internet City as my next home.

The unfortunate thing is, if you stop and think about it -- such a service, even if it took just a 0.1 percent commission on all sales, would earn many millions of dollars, eventually becoming billions of dollars per year as the total value of retail e-commerce transactions grows. It's a shame that this kind of money won't be flowing into New Zealand don't you think?

It has the potential to be one of the few Internet business models that would be profitable within the first year of operation.

As always, your feedback is welcomed.

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