While UK card fraud figures
continue to plummet, Louise Naughton asks whether the payments
industry can afford to relax, with fraudsters increasingly moving
into the online world and more e-commerce and digital goods
merchants finding themselves exposed and vulnerable to
risk.
Go deeper with GlobalData
Total fraud losses on UK cards,
cheques and online bank accounts all fell in 2010. The UK card
fraud figure crashed to £365.4m ($595m), their lowest levels for a
decade, according to the UK Cards Association.
While this announcement may be
cause for celebration, it may be wise to keep the champagne on ice
as fraud still remains a significant threat in the online and
card-not-present (CNP) arena.
Payments management company
CyberSource’s seventh annual UK Online Fraud Report says
over a third of businesses expect to see the percentage of web
revenue lost to fraud grow year-on-year in 2011 – an increase from
2009.
Online fraud continues to be
perceived among merchants as the ‘greatest business threat’ –
growing from 25% in 2007 to 59% in 2010. Some 72% of digital goods
companies ranked online fraud as the most serious threat,
generating a higher expectation of fraud risk than respondents from
other sectors.
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By GlobalDataOver a third of UK businesses
reported that the percentage of online revenue lost to payment
fraud has increased year-on-year and CyberSource claims that
merchants are currently rejecting 5% of incoming orders on average
due to suspicion of fraud – a figure that has increased from 4.6%
in 2009.
Digital goods retailers reject 6.1%
of orders, which represents the highest average amount of rejected
orders on the suspicion of fraud.
One-fifth of respondents of the
survey manually review orders for potential online payment fraud,
which is a slight increase on the 2009 survey according to
CyberSource. 1.9% of accepted orders resulted in fraud losses, up
from 1.6% in 2009.
‘Lousy
technology’
The UK Cards Association has cited
online fraud prevention tools such as Verified by Visa and
MasterCard SecureCode as contributing to the drop in total fraud
losses on UK cards in 2010 .
However, academic research claims
the 3-D Secure (3DS) services may not be as robust and
consumer-friendly as the industry would like to believe.
Steven J Murdoch and Professor Ross
Anderson, researchers in the computer laboratory at Cambridge
University, claim 3DS has so far escaped academic scrutiny, despite
it being a ‘textbook example’ of how not to design an
authentication protocol.
In their paper, Verified by
Visa and MasterCard SecureCode: or, how not to design
authentication, published in January 2010, Murdoch and
Anderson say 3DS may have its economics right, at least for
merchants and banks, but it has “lousy technology”.
“Merchants who adopt [3DS] get
transactions treated as cardholder-present transactions, while
banks get to shift liability onto the customer,” says the paper.
“Customers receive little benefit in security while suffering a
huge increase in their liability for fraud.”
Merchants typically deploy a
combination of six different automated anti-fraud tools – something
that has not changed since CyberSource’s previous survey in 2009 –
and investment in automated screening tools are predicted to
continue during 2011.
“For 2011, there is a focus on
achieving more with the same resources, a scenario that is not
uncommon in the wider market,” says the report.
“Fraud management budgets will
remain relatively stagnant, both in terms of the tools being
employed and associated staff.”
With this in mind, CyberSource says
merchants should focus on further streamlining internal processes,
as well as optimising the use of appropriate anti-fraud tools.
Academics have shone a light on the card schemes’ 3DS
authenticator services and revealed they are not as they seem.
