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Online Fraud Rates Drop to Near In-Person Rates

April 19, 2006
A survey of retail merchants finds that online fraud rates are declining to about the same rates reported by brick-and-mortar stores, while fraud spikes and fraudsters' use of increasingly sophisticated schemes are keeping retailers on their toes, according to the Merchant Risk Council (MRC), an trade association.

Fraud rates for in-person credit-card transactions are usually less than 0.1% of sales. The council's fifth annual survey found that 48% of online retailers surveyed said that their chargebacks now match that rate, 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, but fraud still requires vigilance from online retailers," said Julie Fergerson, co-chairman of the Merchant Risk Council.

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

As the adoption of fraud prevention tools increases, their effectiveness often decreases as scam artists find ways to work around the security tools.

Since 2001, online merchants report that the effectiveness of Address Verification Systems, for example, has dropped from 70% to 25%, although its use rose from 70% to 83% over the same period. Similarly, the adoption of Card Verification Codes increased from 38% to 73%, but merchants report a decline in its effectiveness from 49% to 31%.

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