March 4, 2008, 12:00 AM

Retailers that share risk-management practices report lower online fraud

Large Internet retailers in the U.S. that share risk-management best practices outperform other large online retailers in controlling fraud and protecting valid customer orders, according to the Merchant Risk Council.

Large Internet retailers in the U.S. that share risk-management best practices outperform other large online retailers in controlling fraud and protecting valid customer orders, according to a new survey from the Merchant Risk Council and CyberSource Corp.

The survey found that MRC Platinum Merchants-120 of the largest Internet retailers in the U.S. that share anti-fraud best practices through educational programs, committees and conferences-report that only an average of 0.8% of their total revenue is lost to online fraud. That compares to 1.2% for other large non-member merchants (with greater than $50 million in annual online sales) and 1.4% for the overall sample.

With MRC Platinum Merchants estimating $75 billion in online sales, a 0.4% lower revenue loss translates into $300 million in protected sales.

MRC Platinum Merchants also had the lowest fraudulent order rate, with 0.56% of accepted orders later proving to be fraudulent, according to the survey. That compares with 0.67% for other large online merchants and 1.3% for the overall sample. Fully half of Platinum Merchants reported fraudulent orders of 0.2% or less.

“The survey results demonstrate that MRC Platinum Merchants continue to surpass non-MRC online merchants in fraud and risk prevention,” says Tom Sullivan, MRC board chair and senior director of global payments and risk, Expedia Inc. “These brands are the most aggressive at battling fraud, and as a result, the most successful.”

The survey also found that MRC Platinum Merchants consistently incorporate more fraud detection tools and more automation in their order processes. Platinum Members use an average of 8.2 fraud tools, compared with 6.8 among other large online sellers and 5.4 in the overall sample.

Platinum merchants also have the lowest rate of manual order review, with an average of 13% of orders manually reviewed to screen for fraud, down from 14% in 2006, according to the survey. In comparison, large non-MRC merchants showed a 15% manual review rate and the overall sample had a 33% rate. Manual review accounts for more than half of fraud management budgets for online merchants and can delay orders and limit growth.

The survey was conducted as part of the Ninth Annual CyberSource Fraud Survey between Sept. 13 and Oct. 1, 2007. Of the 318 respondents, 57 were MRC Platinum Merchants.

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