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
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in their unpublished rules and regulations, which were never disclosed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
"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
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
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.