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Online retailers of all sizes fight web payment fraud by manual review. This is true even in the highly automated online environment, according to the CyberSource Corp, 10th annual survey of ecommerce fraud. The study revealed that all web merchants who conduct reviews manually did so on 32 percent of all orders they received in 2008. That nearly parallels the 33 percent that reported this practice in 2007.

Smaller merchants review a higher percentage of online orders. The study suggested this may be because their lower order volume permits it. Online retailers with annual revenue of $500,000 or more, but less than $5 million, reviewed 35 percent of their orders manually in 2008, compared with 51 percent of all orders by merchants with annual revenue of less than $500,000. By contrast, merchants with revenue of $5 million or more, but less than $125 million, reviewed just 34 percent of orders manually in 2008. Those with annual revenue of $25 million or more reviewed 15 percent of orders manually.

"Even larger merchants review a significant percentage of online orders. They likely devote more resources to this task than is operationally warranted," noted the report's authors. Merchants performing manual review use a wider variety of tools and processes than typically are used in fully automated screening. Attempting to validate an order by contacting the customer directly is standard practice at 70 percent of all merchants in the survey and at 82 percent of the large merchants. The latter are defined as those with annual revenue of $25 million or more. Another frequent practice in manual review is to contact the card issuer, which is done by almost half of all merchants surveyed and by 60 percent of large merchants.

In 2008, two thirds of merchants overall used four or more fraud detection tools during manual review, with 4.9 being the average. Larger merchants reported using 6.1 fraud detection tools on average during manual review.

The report noted that, given the time required to recruit and train workers in manual review techniques, staff retention is one key to optimizing the process. Of all the merchants, 15 percent said their review staff was new. That figure was higher (24 percent) among large online retailers. "Fraud rates or order rejection rates can increase if highly experienced review staff members leave an organization and are either not replaced, or replaced by less experienced reviewers," the report concluded.

Article ID: 1029