European-based e-commerce businesses fight fraud differently than their U.S counterparts do, according to a new report by the Merchant Risk Council (MRC) Europe and CyberSource.
68 online businesses in Europe and the United States participated in the European Online Fraud Report survey, which compares the ways that European and U.S. e-commerce companies fight fraud. 32% of the participating companies sell physical goods online, 34% sell digital goods and 10% sell subscriptions. 16% are companies that sell travel services and 7% market and sell services via the web. 1% was unaccounted for in the study.
Here is a breakdown of common fraud-prevention tactics used in the U.S. and Europe:
- Card Verification Value, or CVV, numbers:84% of online businesses in Europe ask consumers for this code vs. 92% in the U.S. This refers to the three- or four-digit code that appears on the back of a payment card. Requesting this code helps online retailers verify that a credit or debit card is in a consumer’s possession during a card-not-present transaction.
- Customer order history:75% in Europe vs. 90% in the U.S. This means looking to see if previous orders by the same customer ended up being fraudulent.
- Telephone number reverse lookup: 43% of European companies use this tactic vs. 77% of their U.S. counterparts. This is where a retailer looks up a phone number associated with an order to see if it has been associated with other fraudulent orders, to see if it is valid or to reveal if it comes from a region or area that produces a lot of online fraud.
- Public record and credit monitoring services from vendors: 25% in Europe vs. 56% in the U.S.
Greater access to public records in the United States, such as telephone data, helps explain some differences between regions, says Nicolas Vedrenne, MRC's managing director for Europe.
Additionally, 57% of the European businesses say that a fraudscoring model is one of their top three most successful anti-fraud measures, compared with 39% of U.S. retailers polled. A fraud-scoring model takes the various fraud tools listed above as well as others and combines them to come up with a fraud score—transactions that score a certain number or higher are not approved or are investigated further.
40% of European retailers rate 3-D secure credit card verification—a tool that has cardholders tie their credit cards to an online password that they must enter at checkout—among the three most effective anti-fraud tools, as opposed to 18% in U.S. Visa and MasterCard have offered incentives to European retailers to deploy these systems.
39% of businesses in Europe consider IP geolocation information one of the three most effective tools, as do 37% in the U.S. IP geolocation helps identify the location of the customer placing an order, which can help a retailer identify buyers coming from high-fraud regions or whose location does not match the shipping address they provide.
Device fingerprinting is considered as one of three most effective tools by 46% of both sets of retailers polled. Device fingerprinting is technology that warns merchants of transactions generated on devices that have been used to commit online fraud. Around 34% more retailers overall plan to use the tool in 2012.
28% of companies in Europe rate web site behavior analysis as one of the top three tools compared to 4% in the United States. But nearly 30% of U.S. sites say they will use this tool in 2012.
22% in Europe include negative lists (in-house lists of customers that have previously committed fraud or charged back orders) in their top three anti-fraud measures, compared to 38% in the U.S.
17% in Europe rank telephone number reverse look up in the top three anti-fraud tools compared to 10% in the U.S.
With Europe’s patchwork of rules, regulations and payment methods that vary from country to country, e-retailers operating across Europe may want to develop specific anti-fraud tactics for each country, Vedrenne says.
The report lists other key findings for Europe e-commerce businesses including:
- Turkey has the highest fraud rate, with 4.5% of transactions being fraudulent, compared with a European average of 1.2%. MRC says Turkey’s high rate could be based on a small respondent base. U.K. has a 1.4% fraud rate, while that rate is only 1.1% in France and Germany.
- More European companies reporting losing less than 1% of online revenue to fraud (53% of companies in 2012, compared to 48% in 2010). 5% of retailers report revenue loss rates of 10%-20%, up from 0% in 2010.
- The 50% of European companies surveyed whose online yearly revenues exceed 30 million euros (US $37 million), are being hit harder by fraud (1.8% revenue loss rate in 2012, up from 1.3% in 2010) than smaller companies.
- The average annual revenue loss rate from fraud among European companies surveyed rose from 1.59% in 2010 to 1.63% in 2012.