March 14, 2012, 1:19 PM

Most e-retailers say they have fraud under control

More than 71% say their fraud rate is less than 1%.

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Fraud is the scourge of e-commerce, but many e-retailers claim to have it under control, according to a recent Internet Retailer survey of 254 companies.

Most retailers say their fraud rates are manageable, with 71.7% reporting a rate of less than 1.0%, 12.3% a rate of between 1.0% and 2.0%, 8.7% between 2.0% and 3.0%, 5.8% between 3.0 and 5.0%, and 1.4% more than 5%. Fraud rates were unchanged in the past year for 62.5% of respondents, while rising for 21.8% and falling for 15.7%.

These results are no surprise to Denée Carrington, a senior analyst at Forrester Research Inc. Most retailers she’s talked with say their fraud rates are about the same as last year. “Online merchants are becoming more sophisticated,” Carrington says. Many use technologies such as tokenization, which replaces the sensitive payment data with a surrogate marker, and geolocation to monitor the physical location of a browser address to reduce their fraud risk. Such services can eliminate the allure of stealing payment card data. Geolocation services may determine a site visitor is accessing an e-commerce site from a nation other than the one where the payment card was issued.

Another way e-retailers block fraud is by manually reviewing suspicious transactions. This step may thwart a criminal or it could allow a legitimate transaction to proceed that automated systems might have halted.

In the survey, 41.3% of e-retailers say they perform manual reviews on 5.0% or less of their transactions. 11.6% say they do so on between 6.0% and 10.0% of their transactions; 5.1% review between 11.0% and 15.0%; 2.2% between 16.0% and 20.0%; and 39.9% more than 20.0% of their transactions.

The survey was conducted in February in conjunction with marketing and survey technology provider Vovici Corp.

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