The CyberSource 2011 Online Fraud Report – 12th Annual Edition, released in January, is always a great resource for merchants. I read it every year and every merchant should get it and digest it.
The report is compiled from survey results of 334 US and Canadian merchants. I’m not a statistician and I wonder if 334 respondents is statistically significant for the big picture. After all, there are many thousands of merchants in the US alone. Still, it’s an excellent report.
One of the things I’d like to see in these reports is debit card and credit card break out. CyberSource appears to be aggregating both classes of card together. This isn’t unusual since most merchants wouldn’t know which class of card is used, but this could certainly skew the numbers.
There seems to be a general consensus in the payment industry that credit card fraud is decreasing. Clearly, the CyberSource report reflects the trend. Given that smaller merchants have an increased awareness of the problem and more sophisticated fraud fighting tools available, I would expect this. But most reports tell us that debit card fraud is increasing along with the use of them; some say at a frightening rate. Admittedly, the biggest debit card problems seem to be at ATM machines for the big cash-out but there is ample evidence that gas stations and convenience stores are feeling big losses from debit cards as well. We don’t know what classes of merchants are represented in reports but, in my opinion, debit cards are, or soon could be, a bigger fraud source for merchants.
The CyberSource report shows some other interesting things. We’re seeing that, as expected, lower volume merchants are doing significantly more manual screening than the high volume operations. Merchants with under $5M in sales are manually reviewing 35% of orders as opposed to the over $100M bracket doing only 9% manual screenings. This difference has been evident for at least 4 years but the overall manual review rates have decreased. I find the decrease of manual review troubling since it is usually more effective. No doubt the decrease is due to shrinking profits and increased costs. There is no question that manual fraud screening strains the bottom line.
According to the CyberSource report there’s some good news on the horizon. A large percentage of merchants (46% of merchants with over $25M in revenue and 30% overall) are planning to implement device fingerprinting in the next 12 months. Device fingerprinting is generally a bit more expensive than other forms of card fraud screening but its value is being recognized. One of the leading vendors in that arena is iovation, Inc.
I’ve been pleasantly surprised to see the two year downward trend in both the percentage of revenue and total dollars. I predicted a level or increasing trend so I won’t stick my neck out again. But I will say that with the increased use of RFID cards and mobile payment systems, combined with the sagging economy and increasing sophistication of the fraudsters, those of us involved in detecting and preventing fraud had better not let the two year trend allow us to become complacent.
