Merchants Making Inroads Against Internet Fraud

A recent survey of more than 200 small, medium and large Internet merchants suggests that increased spending on fraud prevention is helping to drive down fraudulent chargeback rates among all merchant groups. Conducted by the Merchant Risk Council (MRC), a non-profit group dedicated to protecting online orders, the survey found that merchants in general are investing more on fraud prevention, with 17 percent spending greater than two percent of their total revenue on fraud prevention in 2003, up from 13 percent in 2002.

Moreover, this boost in spending translated into a significant drop in fraudulent chargebacks in 2003. Specifically, the percentage of online businesses with fraudulent chargeback rates greater than one percent fell to single-digit levels last year, averaging 9.7 percent. This compares to 2002, when almost twice as many merchants (18 percent) had a greater than one percent fraudulent chargeback rate.

On average, the survey also found that the percentage of merchants with a fraudulent chargeback rate of less than 0.35 percent increased from 48 percent in 2002 to 64 percent in 2003. Furthermore, improvements were observed in all merchant groups, especially among small merchants, who had a 31 percent improvement in this category.

Other findings include:

• Among the merchants responding to the survey, 38 percent believe that international fraud is "out of control" or "a big problem," compared to 41 percent who reported this level of concern in 2002;

• Use of cardholder authentication programs, such as Verified by Visa and MasterCard SecureCode, is trending upward. In 2002, an average of 31 percent of companies said they had implemented or would be implementing one of these programs during the upcoming year. This compares to an average of 45 percent of companies who have already implemented or plan to implement one of these programs this year; and

• Despite the growing use of cardholder authentication programs, 16 percent of merchants say that they have "never heard" of Verified by Visa, including over 20 percent of medium- and large-sized merchants.

Of the 217 merchants surveyed, 46 have annual online revenues of less than $100,000, 58 have revenues of $100,000 to $1 million, 67 have revenues of $1 million to $25 million and 46 have annual online revenues of more than $25 million. The Merchant Risk Council represents 6,500 merchants, vendors, financial institutions and law enforcement agencies. For more information on the MRC's "2003 Member Survey," visit http://www.merchantriskcouncil.org.