A loss of $15,000 in diamonds during the height of the Christmas-buying frenzy would be enough to make most people sing the holiday blues. Not Pat Coughlin.
Coughlin has owned and operated American Diamond Importers, an independent brick-and-mortar jewelry store in St. Clair, Mich., for 15 years. Until the fall of 2006, Coughlin had a static, information-only website; he didn’t do any online business.
Following the Progress of an Ecommerce Start-up
Practical eCommerce is following American Diamond Importers of St. Clair, Mich., throughout the year to chronicle the triumphs and struggles that accompany the launch of an ecommerce site.
Owner Pat Coughlin won a contest from eBay to launch a ProStore and he’s made a significant investment into the project: Hired six people, purchased new computers and equipment and has planned a $100,000 advertising campaign. Coughlin’s goal: Generate $1 million in new sales from his online business within 12 months.
We’ll be there with him and his team every step of the way. His online store launched Aug. 18, 2006, after he won an eBay ProStores contest. He quickly began to implement the steps necessary to revolutionize his traditional business model into one that included an online business and a global customer base.
Coughlin and his staff learned an ugly truth about online commerce during the recent Christmas season: online fraud is more than a potential threat, it can easily be a frightening reality.
The American Diamond Importers website rang up new sales during the holiday season, and the team enjoyed the revenue bump the new sales channel provided. It was all good — until the telephone at the office began to ring with people who complained of unauthorized charges to their credit cards.
After some investigation, Coughlin determined that a group of accomplices from five states was using stolen credit cards to buy merchandise from Americandiamondimporters.com. The thieves were able to take advantage of Coughlin because his site had not activated the card code verification (CCV) option with its PayPal Website Payments Pro account. Consequently, thieves could use stolen credit card numbers to purchase products because American Diamond Importers wasn’t asking for the unique three- or four-digit security code that was on the card and only visible to the actual card holder.
Complaints from cardholders
“We started to get a lot of sales, but also started to get complaints from people saying there were false charges on their credit cards,” Coughlin said. “[Someone was] using stolen credit card numbers to buy merchandise. As we did with other customers, we were gift-wrapping the items, sending them candy and a hand-written thank-you note,” an ironic twist that, under the circumstances, Coughlin said, “really makes me mad.”
Coughlin’s anger turned to decisive action, he said.
“Once we figured out [the problem] and corrected it, we haven’t any any problems.”
How do you fix a problem like the one Coughlin faced? Turning on the CCV option with your merchant account or payment processor is as easy as checking the appropriate box in the administrative functions. That will activate the security measure.
The thieves didn’t buy large-ticket items, but they could have. Instead, Coughlin said they purchased multiple $100 items, probably in order to not attract undue attention. In the end, about $15,000 in merchandise was stolen.
“They just looked like happy customers who were continuing to reorder,” Coughlin said. “When one bad guy found out we were taking the cards without the security function on, he must have called his friends throughout country.”
Coughlin said his team learned a valuable lesson throughout the process, and he remains excited about his online business. He has implemented additional security measures to help eliminate future problems. He recommends three things for online retailers, especially those who sell big-ticket items:
- Make sure the CCV option is on, and that it’s working at your site.
- Use a website like 411.com to compare the shipping address and phone number of each person who orders. If there is a discrepancy, you should ask more questions.
- Make a telephone call to the customer to ensure an order was placed. Not only can it serve as a customer-service telephone call, it will also help determine if the information provided during the online order is accurate.