Ten percent of companies in the Worldwide E-Commerce Fraud Prevention Network said online fraud is the most significant problem they face, while 36 percent said the problem is somewhat significant.
The New York-based network surveyed 140 of its 1,000 members and found that online fraud costs many of the businesses $1,000 to $10,000 in losses annually. Nineteen percent said losses were more than $100,000.
Thirty-three percent said the difficulty in prosecuting Web-based fraud is the greatest threat to their online business, while 22 percent cited stolen credit cards as the biggest threat, 19 percent said lack of security standards across the Web, 14 percent said the growing use of credit card generators and 12 percent said identity theft.
The network, founded by American Express, Amazon.com, Expedia.com, Starwood and other corporations, also found that 70 percent of the merchants believe fraud prevention tools can keep fraud to a minimum.
“It is clear that online merchants view fraud as a serious problem, but the good news is that many merchants seem to be taking steps to prevent it,” said Ayesha Almeida, vice president for online usage and marketing at American Express.
The most effective prevention tool, used by 70 percent of those surveyed, is address verification systems. These systems verify that the customer's stated billing address on the online order form matches the billing address on file with the credit card company. However, because these systems cannot verify addresses other than billing and many consumers ship to a location other than the billing address, these systems are limited and should be used in conjunction with other tools, according to the network.
Fifty-four percent of those surveyed said customer follow-up and real-time authorizations were their most used tools. Customer follow-up allows the merchant to verify additional information directly with the customer, such as mother's maiden name, to evaluate whether a transaction is legitimate.
Forty-nine percent also believe card verification codes — security codes of extra digits on credit cards — are invaluable. Forty-two percent said customizable rules, allowing merchants to revise guidelines as often as needed to stop or flag transactions for review, are effective in preventing fraud.
The least-used tool was custom-built neural networks, a large scoring model based on historical data of known fraud instances. “This model is extremely effective but requires a merchant to have at least a six-month database of historical order data, including fraud details,” the network said.
Despite their use of fraud prevention tools, most companies spend less than 1 percent of total revenue on prevention. Only 10 percent said they spend more than 3 percent of revenue on prevention. Although the amount spent to combat fraud is relatively minor, online companies are probably combating fraud successfully with their current budgets, the network found.
“While they believe it is a problem, they believe it can be controlled,” said Joanne Fisher, corporate spokeswoman for American Express.
The network's Web site is www.merchantfraudsquad.com.