Is fraud being beaten by the e-tailers?

Moves by major banks to shift the cost of fraud back onto customers and merchants appear to have stirred the online retail operators into action, with many now reporting that a crackdown on fraud has seen levels either plateau or dip.

In total, two-thirds of respondents to a recent survey of 160 e-tailers said they had seen no increase in fraud during 2005, with 30 per cent saying levels had fallen and 35 per cent claiming they had remained static.

And it seems a tougher stance on the menace of online fraud is to thank for the reversal of recent upwards trends. This has seen many turn to technical solutions, with 88 per cent of respondents claiming anti-fraud solutions now represent their best bet for keeping levels of fraud heading downwards.

For 2006 merchants are also considering further measures, with 29 per cent of respondents saying the Verified by Visa and MasterCard SecureCode systems - both of which create single-use passwords/PIN numbers for transactions - are top of their lists for the coming year.

However, with credit and debit cards still far and away the most popular way to pay, many companies do still put some, if limited, faith in more traditional means such as manual verification.

Almost two-thirds (61 per cent) of respondents still manually review orders, samples of orders or orders flagged up as suspicious. In total an average of 19 per cent of orders passed before human eyes for verification.

The three-digit card verification number is now the most popular fail-safe with merchants (used by 62 per cent). Address verification (AVS) – ensuring billing or delivery address, or both, match the address the card issuer has on record – is also popular with 54 per cent of e-tailers.

However, this method throws up large numbers of false positives – genuine orders which are rejected by automated systems possibly due to complicated addresses and related anomalies. Of 12.9 million credit card transactions monitored by secure payment firm CyberSource, who compiled the research, 25 per cent of payments rejected by AVS technologies turned out to be genuine.

Such systems also failed to detect 62 per cent of fraudulent transactions.