Australian Internet Café Survives Fraud

Australian Internet business café Global Gossip was forced into bankruptcy because of rampant credit card and phone card fraud, but plans to go back to business in September.

by Craig Liddell of australia.internet.com [August 15, 2002]

Internet business café provider Global Gossip is set to emerge from voluntary administration, Australia's word for bankruptcy protection. The first Global Gossip store was opened in Sydney, Australia on December 25, 1997. The company's stores provide phone, fax, e-mail, and Web services, and some provide additional services as well. It was worldwide fraud in one of the those additional services that got the company into trouble.

"The main reason for voluntary administration was actually credit card fraud in our phone card division," says Global Gossip director, Peter Ovenden. "This is unrelated to our core retail business model and the online and retail divisions of the business remain cash flow positive and profitable. Their performance is unaffected by the administration process. The nature of our corporate structure meant that we had to place the entire group into administration."

Customers fraudulently using credit cards to buy or add to phone cards cost the group A$750,000 in lost revenue and increased billings. Global Gossip also lost revenue in the United States due to the downturn in tourism as a result of the events of September 11.

"The Australian operations saw an increase in business as a result of 9-11," Ovenden says, "with more budget travellers visiting Australia than the US, Asia, and Europe. The only negative impact of 9-11 was on U.S. operations. Our Venice Beach store had been open only five weeks before tourism in the U.S. died."

He continues, "we were expecting strong U.S. trading during September and October. Instead, the U.S. retail operations were adversely affected. This required capital to be sent over in order to support the operations instead of a return of capital to Australia."

However, Ovenden says it's difficult to measure the impact of both factors. "The vast majority of the cash impact on our business was from the credit card fraud. This season the U.S. operations have turned around and tourist levels are buoyant."

Global Gossip established a 24 hour call center to process phone card recharges after the extent of the fraud was discovered. Fraud has now been reduced to a negligible amount, according to Ovenden.

The company also uses a core series of fraud protection parameters and a revolving or random series of secondary parameters. He says, "they were developed in house when we realised that little protection is afforded by credit card suppliers and the banks processing departments. If you do not have a signature on file, the merchant is responsible for all transactions."

Finally, Ovenden says, "by far the greatest protection is afforded by a trained operator talking directly with customers."

It may be our card but it's your fault
Merchants are afforded little sympathy by the credit card companies, especially when conducting 'card not present' transactions, i.e. those over the phone or Internet.

Screwed No More issued a report that says in part, "the fact of the matter is, credit card fraud turns a profit for the credit card processors, because they charge a charge back fee."

The site is "run by someone who was screwed by the merchant account people."

Ovenden was also surprised at the number of sites that offer detailed instructions on how to commit credit card fraud.

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