As transaction volume for U.S.-based online merchants increased in 2010, so did the number of fraudulent attempts, which may mean merchants should reexamine their fraud-prevention systems to fend off potential attacks, new research suggests.
Total online purchases in the U.S. reached 1.3 billion in 2010, up 30% from 1 billion in 2009. During the same period, total attempts to commit online fraud increased by 77.8%, to 16 million from 9 million, according to a recent study from Retail Decisions Ltd., a London-based card fraud prevention and payment-processing company.
“Consumers are becoming more comfortable with shopping online, and sales were up in 2010 because many consumers are slightly more optimistic about the economy and feel a bit more financially secure,” Carl Clump, Retail Decisions CEO, tells PaymentsSource.
Moreover, many merchants now realize the Internet is “the cheapest channel of distribution,” Clump says. “Merchants do not incur the same costs to maintain an e-commerce site as they do an actual store. So anything merchants can do to persuade consumers to shop online, they will do,” he adds.
Subsequently, as both merchants and consumers are becoming comfortable with e-commerce, so are fraudsters.
“Fraudsters like transacting over the Internet because it is an anonymous way of purchasing as it is basically a nonviolent form of mugging,” Clump says.
While on the Internet, fraudsters “can perpetrate their offences without being recognized or detected, especially because identifying buyers and sellers is not very important when shopping online,” Hendi Prabowo, researcher and internal auditor at the Islamic University of Indonesia, tells PaymentsSoure.
Moreover, because of U.S. resistance to smart card technology, fraudsters have a better chance to use magnetic stripe data skimmed off a consumer’s card online, Prabowo notes.
Most online merchants have some type of fraud-prevention system in place, which is a good first step, Clump says. But overall, “merchants are not necessarily fraud experts and may have trouble keeping up with the techniques fraudsters use,” he notes.
Though services offered by third parties may be costly, such companies may provide better protection again fraud and may help merchants attract more customers because consumers know they are protected, Prabowo says. “The key is to find a balance between effectiveness and efficiency by mixing various prevention measures,” he adds.
