An Empirical Investigation of the Causes and Consequences of Card-Not-Present Fraud, Its Impact and Solution

The boom of electronic commerce technologies in recent years has drastically increased the demand for an effective electronic method to pay or be paid. The currently predominant method is online card payment, in which the cardholder is not present at the point of sale. However this method is accompanied by huge vulnerabilities and also serves as a low-risk avenue for fraudsters to steal card details with the intent to defraud online merchants. These merchants are those who mostly bear the overall risk and consequences because they cannot provide a document signed by the legitimate cardholder. Several attempts and proposals have been introduced to solve this problem. However, many have failed to be adopted, while those that have been adopted have not been able to adequately solve the problem. The card payment industry is fully aware of the problem and its consequences, but it has abdicated responsibility for fraud in this type of transaction, and declines to guarantee the “card-not-present” fraud solutions that have been proposed during the past ten years. Instead, the industry has chosen only to accept responsibility for fraud arising from the “card present” environment, which is of low risk because it uses chip-and-pin technology. As a result, many merchants have withdrawn from online business for fear of losses, while consumers are sometimes turning back to alternative payment and traditional “bricks-and-mortar”-style shopping, for fear of identity theft.

In light of these problems and challenges, this research adopted a practice approach to investigate the causes and consequences of card-not-present fraud, the associated infiltration techniques, and the impact on the development of e-commerce, in order to unveil and establish an understanding of the background and characteristics of card-not-present fraud, its causes, its penetration techniques and aftermath.
This research examined the result of the investigation, and proposes a feasible solution known as 3W-ADA Sentry System, built out of the framework of analytic geometry to counter threats of card-not-present fraud and related identity theft by introducing a non-electronic and low-cost dynamic tokenization process for card-not-present authentication. This proposal could eventually help to restore the security of online card payment authentication, restore the trust of participants, and improve the development of electronic commerce. However, due to limitations inherent in this research, it provides instead recommendations concerning the additional work that would be required to turn the 3W-ADA Sentry into an Association or Scheme to promote its global adoption and its compatibility with the infrastructures and systems of relevant organisations.