Online Fraud Risk No Higher Than Offline

Online shoppers can breathe a sigh of relief. So can online merchants.

MAY 10, 2006 – Since the early days of e-commerce, consumers have feared that their financial information less secure online than off, and, in most cases, they were right. Now a new study, from the Merchant Risk Council (MRC), shows that the fraud rates for online stores are now similar to the fraud rates suffered at brick-and-mortar stores.

MRC figures indicate that card-present fraudulent chargeback rates in stores are usually less than 0.1% of sales. In the recent survey, 48% of the online retailers who responded said that their chargeback rates match that level, representing a significant improvement over previous years when online fraud outpaced card present fraud by as much as five times.

“The numbers show a very positive trend,” said Julie Fergerson of MRC. “But fraud still requires vigilance from online retailers.”

In recent years online merchants have adopted fraud prevention tools such as address verification systems and customer follow up and this has clearly helped prevent fraud.

As the adoption of fraud prevention tools widens, however, their effectiveness often decreases. For example, since 2001 online merchants report that the effectiveness of address verification systems fell, although their use rose from 70% to 83% over the same period. Similarly, the adoption of card verification codes increased from 38% to 73% of online retailers but merchants similarly reported a decline in their effectiveness.

“As fraud prevention tools gain widespread use, their effectiveness declines, and fraudsters are always looking for ways to ‘beat the system,'” Ms. Fergerson cautioned. “Most of our members realize this, and 76% of them have either maintained or increased their review staff levels, thus keeping their shoppers safe.”

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