Have high hopes for your Internet storefront this holiday shopping rush? Be aware that the number of online shoppers is not the only thing expected to skyrocket this season - online credit card fraud is expected to rise as well, costing merchants $400 million by the end of the year. Developing an anti-fraud strategy now could help lessen your share of the burden.

Internet merchants assume more risk and much higher penalties for credit card purchases than do brick-and-mortar stores: that's because nearly 10 percent of all Internet transactions are fraudulent, compared to less than 1 percent of credit card transactions in regular retail stores, according to a 1999 study by Massachusetts-based Meridien Research. And online fraud is only expected to get worse.

Why are online fraud rates so high? Unlike face-to-face transactions, where a signed receipt serves as a contract protecting the merchant against identity fraud, transactions made over the phone or online do not guarantee the card user's identity. Even worse, the merchant must assume all the risk in such non-face-to-face transactions.

If you're hit by e-fraud, your total costs add up to the cost of goods sold, bank and card processor fees (including higher discount rates, "chargeback" fees, fines up to $100,000, even termination of service for excessive chargebacks), the cost of manually resolving bad transactions, and the cost of losing valid orders through a decline in customer loyalty.

You can fight back with fraud detection software, available either separately or as part of your credit card processing service.

Anti-fraud tools include real-time authorization to ensure the card number and expiration date are valid and that customer funds are sufficient; address verification systems, which help identify transactions where the billing address does not match the shipping address; rules systems that flag certain types of transactions based on customizable if/then statements; and statistical models that learn by example and correlate transaction attributes with known fraudulent activity.

While none of these tools are foolproof, using a combination can help you weed out high-risk transactions. However, the higher degree of fraud protection you seek, the more you'll pay, perhaps thousands of dollars of one-time fees on top of per-transaction fees.

If you can't afford such tools, don't fear. There are some simple steps you could take to try to protect yourself from stolen credit card numbers and other online fraud.

Keep an eye out for typical fraudulent behavior, such as unusually large dollar orders of many low-priced items. Flag large orders that ask for express or P.O. box shipping. E-mail a receipt of the order to the e-mail address provided - a bounced message may indicate a fake e-mail address. Make sure you ask for and verify phone numbers on each order. Know your average order amounts and note any unusual numbers.

Another type of fraud to watch out for involves customers who place legitimate orders, then claim some or all of their order wasn't shipped. To prevent this, have your shipping personnel manually check off each item as they pack an order, include that checklist with the shipment, and keep a copy for your records. You may also want to use shipping methods that offer package tracking, so you can prove to customer that their order was delivered.

These low-cost measures can help you plan your risk-management strategy and keep your online store humming through the holidays.

Quick tips