The findings are part of the second annual UK online fraud
survey from CyberSource, an electronic payment and risk management
specialist.
The Visa and MasterCard systems reduce the likelihood of online
fraud by requiring shoppers to provide a password as well as their
card details. Collectively known as 3-D Secure, the systems also
transfer fraud liability from the internet retailer to the card
issuer. Around 29% of merchants expect to introduce them
during 2006; another 25% were already using them in
2005.
Most merchants are layering their security – using an average of
four anti-fraud measures. Others include Address Verification
Service and Card Verification Number (a three-digit code on the
back of each card).
Automated checking and authentication schemes are used by 70% of
merchants, according to CyberSource.
But the survey of 160 online retailers in the
UK also found that manual checks are performed on almost a fifth of
all incoming orders.
By far the most popular type of manual check is telephone or
email contact with the customer, followed by communication with the
customer's bank, checking order histories and negative lists, and
consulting third parties – all of which were roughly on a par. Over
two-thirds of merchants said they accept 80% or more of
orders that have been manually reviewed.
Contrary to the public perception of internet fraud, CyberSource
reports that online retailers are winning the battle against
fraudsters.
The survey found that 65% had seen losses from online
fraud stall or fall in the last 12 months, while only 16%
reported that fraud has risen as a proportion of revenues.
"While fraud remains a problem, there is a clear disconnect
between consumer feeling and retailer reality about the extent of
online fraud,” said Nathan Jackson, managing director of
CyberSource.
“While retailers are investing heavily in beating fraud – often
successfully according to our research – the public is being made
to feel nervous about shopping on the web," he said. "The online
retail community needs to continue working to beat fraudsters, but
while we should be promoting prudence we shouldn’t be scaring the
consumer away from buying online."
CyberSource’s inaugural 2005 report showed that online retailers
feared a leap in internet fraud driven by the introduction of chip
and PIN to high street stores. Instead, the latest figures from
payment association APACS show that online fraud climbed by
5% in the first six months of 2005, which is relatively
low when compared to fraud growth rates in other sales
channels.
According to the figures from APACS, the major growth has been
in other forms of Card Not Present fraud against businesses that
might lack the sophisticated anti-fraud technology employed by
online retailers, such as mail order and telephone order businesses
– which saw a massive rise of 116% in fraud in the
same period.
The new CyberSource report also reveals that 34% of
merchants are not planning to introduce any new anti-fraud
measures in the course of 2006. The report cautions
against complacency.
The report urges merchants to maintain their focus in order to
keep up with the ingenuity of fraudsters, and suggests that
business should begin to use their security tools “as more than
just precautionary tools – as technologies that can empower greater
efficiencies, competitive edge and customer satisfaction.”
