For the second consecutive year, North American online merchants improved their fraud-management performance, demonstrating they can counter crooks’ efforts when using appropriate fraud-prevention systems, new research suggests.
CyberSource Corp., a unit of Visa Inc., conducted the research through an online survey of 334 U.S. and Canadian online merchants in September and October. Among the merchant participants, CyberSource classified 107 as large, 180 as small and 47 as midsize.
As e-commerce sales continue to grow, merchants are shifting their focus to developing ways to reduce fraud losses, and they are seeing the benefits, according to CyberSource. Merchants lost $2.7 billion in online revenue to fraud last year, down 18.2% from $3.3 billion in 2009, the survey data suggest.
To continue to drive down losses related to fraud, merchants should work to make the transaction-review process more efficient, CyberSource noted in its study.
A representative from CyberSource was unable to comment on the study by PaymentsSource deadline.
Many merchants are aware that adding multiple layers of fraud-detection services is important to combat online fraud. About 74% of the survey respondents said they planned to continue to improve automated fraud-detection capabilities and to streamline manual-review processes, up from 66% who said so in 2009.
About 98% of respondents noted they used validation services, which card brands often provide, to help authenticate cards and cardholders. This includes capturing the card validation code/card verification value number printed on cards to verify buyers have the actual card. The percentage of respondents that collect this information increased to 75% last year from 44% in 2003.
Also helpful are address-verification services, which compare numeric address data with information on file from the cardholder’s issuing bank, according to CyberSource.
Many large merchants also are adopting more-sophisticated approaches to fighting fraud, such as device “fingerprinting” and Internet Protocol geolocation services, according to CyberSource. Device fingerprinting examines and records details about the configuration of the device where the online purchase is taking place, while Internet Protocol services can identify the location of the device where the online order is taking place.
Of the large merchants surveyed, 30% said they use device-fingerprinting technology, up from 18% who did in 2009. About 45% of the respondents using this fraud-prevention tactic noted it was one of the most effective for managing fraud, according to CyberSource. About 50% of the large merchants said they use Internet Protocol device-location services.
Payer authentication services, such as Verified by Visa Inc. and MasterCard Worldwide SecureCode, also are designed to help combat fraud, though researchers in the United Kingdom found they are weak compared with other available options (
Verified by Visa and MasterCard SecureCode are similar in which they use a “3-D Secure” protocol. Both options require purchasers to register their cards with the brands to get a secure password to use with online transactions. Relatively few consumers do so, however.
Merchants also must use the 3-D Secure software on their e-commerce sites. If a merchant accurately processes and verifies a transaction through the MasterCard SecureCode or Verified by Visa password, it faces no charge-back risk.
Indeed, managing online fraud continues to be a significant issue for merchants of all sizes. For most of the past decade, merchant online fraud losses continued to increased, reaching a peak of $4 billion in 2008, according to CyberSource.
Since then, despite the increased sophistication among online fraudsters, many merchants have put fraud-prevention systems in place and are seeing the financial benefits, CyberSource contends.
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