Online merchants making better use of fraud-fighting tools, survey says
Online fraud perpetrators are becoming more sophisticated – but so are merchants’ efforts to combat fraud, according to an annual survey on online fraud trends released by the Merchant Risk Council. 60% of merchants polled believe criminals are more sophisticated and 77% report experiencing a fraud spike within the past 12 months. According to the Merchant Risk Council, fraud spikes–a sharp rise in fraudulent online activity over a short period of time–indicate that online criminals are becoming increasingly organized.
But at the same time, merchants report using more tools to combat online fraud, using 13% more tools than they reported using last year. The most commonly-used tool was address verification, used by 74% of those polled; followed by card verification codes, used by 65%; negative files, 55%; and real-time authorization, 54%.
“While merchants are having success combating online fraud, adding new technologies and processes will provide additional successes down the road,” says Julie Fergerson, co-chairman of the Merchant Risk Council and co-founder of ClearCommerce.
Customizable rules, for example—advanced anti-fraud tools that incorporate rules systems that are able to flag transactions based on customizable if/then criteria, such as, “If the order is above $1,000 and the shipping is express, then review the order”—were found by merchants to be the most effective fraud prevention tool. However, it’s only being used by 53% of merchants, the survey found. Fergerson also notes that while creating metrics on fraud prevention tools is a critical first step in their effective use, more than 20% of the merchants polled still don’t establish metrics for fraud prevention.
Besides customizable rules, cited by 50% of those surveyed as the most useful fraud prevention took, others deemed most useful are customer follow-up, cited by 47% of merchants; negative files, cited by 43%; post-process fraud management, 40%; and real-time authorization, 39%.
The survey further notes that as fraud prevention tools are optimized, more merchants are reporting the use of best practices. For example, more merchants report they now review 3% to 10% of their online transactions, which is considered in the optimal range. In addition, according to the Merchant Risk Council, more merchants are reporting lower chargeback rates of less than 0.3%.
The survey, completed in September, was based on responses from 56 small merchants, defined as those with less than $100,000 in online revenue annually; 67 medium-sized merchants with annual revenues of $100,000 to $1 million; 93 large merchants with online revenues of $1 million to $25 million, and 76 very large merchants with online revenues of $25 million or more.
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