Address verification less effective at preventing online fraud, study says

Web retailers are in a virtual “arms race” when it comes to implementing new technology that combats fraud, Debix Inc. vice president of emerging technologies Julie Fergerson told attendees June 6 at the Internet Retailer 2006 Conference and Exhibition in Chicago. “Every fraud tool starts out effective and over time loses its accuracy,” says Fergerson.

A recent survey of web retailers by the Merchant Risk Council finds that as the adoption of fraud prevention tools increases, their effectiveness often decreases, Since 2001, online merchants report that the effectiveness of address verification systems, for example, has dropped from 70% to 25%, although its use rose from 70% to 83% over the same period. Similarly, the adoption of card verification codes increased from 38% to 73%, but merchants report a decline in its effectiveness from 49% to 31%, according to the study.

To combat fraud, merchants need to rely on a number of tools and programs such as customer follow-up correspondence and calls, real-time authorization and fraud scoring. “Fraud is still a problem that merchants must continually invest in,” says Fergerson.