Online Fraud Costs Rose in 2011, Visa Unit Says

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The dollar volume of online fraud is going up, but actual incidents of fraud are decreasing, according to a report released Tuesday by CyberSource Corp., a unit of Visa Inc.

Total online fraud was up 1%, to $3.4 billion, but the number of fraudulent transactions was down 3 basis points to 0.6% in 2011 compared to a year ago. The increase in fraud dollar volume, while small, was the first increase since 2008, the report said.

"The drop in the fraud rate is excellent news, but clearly we still have a long way to go in our war on fraud," says Andrew Naumann, senior business leader for fraud management solutions for CyberSource.

Criminals have gotten a lot better at covering their tracks, Naumann says. And while merchants have become more sophisticated and more diligent about fighting fraud, it's harder to detect.

Criminals have become experts at disguising Internet Protocol addresses and they are discovering ways to avoid device fingerprinting, Naumann says.

"Fraud orders are looking more and more like real orders for merchants, and to better identify them they need to add more tools to their stable," says Lauren Wang, business leader for solutions marketing for CyberSource.

Fraudulent order values are on average $250, compared to $150 for valid orders, according to the report.

Approximately 52% of current merchant fraud budgets goes toward manual review, Naumann says, which is more costly and time-consuming than automated review. Budgets need to shift toward more automated processes that include more data analysis and sharing data across merchants.

"An increasing trend in ecommerce fraud is the … tendency to leverage consortium data to alleviate fraud," Julie Conroy McNelley, a senior risk and fraud analyst at Aite Group LLC, wrote in an email.

"While slower to embrace this model than the banking world, shared fraud networks are increasingly common among online merchants, and a great tool in their arsenal," McNelley wrote.

More than half of merchants surveyed in the report said automated review was their top priority in 2012.

"The fraud that is successfully going through is … perpetrated by the more sophisticated fraudsters, those guys do their homework, and know how to maximize the value of their crime," McNelley wrote.

The survey of 325 merchants was conducted between September and October, 2011. CyberSource is based in Mountain View, Calif.

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