The Triangle Law Center, PLLC, a North Carolina-based law firm, recently filed a class action lawsuit in the United States District Court for the Eastern District of North Carolina on behalf of all Internet, telephone and mail order merchants against Visa U.S.A., Inc., MasterCard International, Inc., American Express Company and Discover Financial Services, Inc.
   The complaint charges that Visa, MasterCard and their co-conspirators (i.e., their issuing and acquiring banks) violated the Racketeering Influence and Corrupt Organizations Act, and committed other unlawful business practice violations by conspiring to commit fraud and theft through means of wire and mail when processing merchants' Internet, telephone and mail order transactions.
   The complaint alleges that the defendants breached their contract, their implied covenant of good faith and fair dealing, duty of care and fiduciary duty as a banking institution by failing to take appropriate measures in addressing fraud and theft in the Internet, telephone and mail order industry. The complaint further alleges that Visa and MasterCard failed to disclose certain competitive transactional and penalty fees to Internet, telephone and mail order merchants and forced such merchants to pay such supra competitive fees with the abuse of their monopolistic powers.
   According to the suit, many of these competitive fees were only stated in their unpublished rules and regulations, which were never disclosed to merchants at the time of contracting. The complaint also alleges that in "cybershoplifting" scenarios, there are virtually no set of facts or documentation in which merchants could argue to prevent defendants from debiting penalty fees from their merchant accounts.
   As a result of these unlawful acts, according to the complaint, merchants have paid virtually all of the costs associated with fraud and theft in their industry while defendants made millions of dollars from their competitive transactional and penalty fees.

   Ezic, provider of digital payment processing solutions, recently added Verified by Visa, a cardholder authentication process developed by Visa, to its fraud protection solution.
   According to Celent Communications, fraudulent transactions account for more than 2 percent of online card spending, compared with 0.1 percent for in-store charges.
   "Verified by Visa is particularly important for card-not-present transactions because it protects merchants (who offer Verified by Visa authentication at their sites) from fraudulent use of consumer Visa cards," said Ezic CEO, Locke Walsh. "Proper security entails an entire arsenal of tools that can prevent attacks on the network, as well as unauthorized access by internal users."
   Verified by Visa requires Visa users to register an associated personal password to their card. When they shop at an online site that has added Verified by Visa to their site, they will be prompted for that password.
   In card-not-present transactions, the merchant becomes responsible for chargebacks (sometimes known as "I didn't do it charges" which often result from identity theft or stolen card use.) Without fraud protection such as Verified by Visa, merchants stand to lose revenue and incur other costs and fees when charges are contested.
   Walsh urged ISOs and their agents who provide merchant accounts to the merchants to choose a payment provider that is offering Verified by Visa protection. The burgeoning numbers of consumers (over 10 million by October 2002, according to Visa) signing up for this program shows that a demand for this added level of fraud protection. Further, merchants are more educated and know that the liability shift away from them is an absolute must if they are to remain in business and profitable.
   According to Ed Freedman, President/CEO of Total Merchant Services, one of the most important things for ISOs to consider is that banks and processors are giving out fewer (ISO) contracts. Their requirements are becoming stricter.
   "Ultimately, at the end of the day, I see a lot of consolidation and few players in our industry as far as major ISOs," Freedman said. Those who want to continue in business should offer comprehensive fraud protection.