Merchant Risk Council Reveals Results of Its Annual Survey of Internet Fraud Trends

The survey asked MRC merchant members to quantify their spending on fraud prevention, analyze charge-back rates due to fraud and rate the categories of fraud that are most problematic for their business. The Merchant Risk Council consists of 6500 merchants, vendors, financial institutions and law enforcement agencies. Its members share the common goal of protecting and encouraging the thriving online commerce industry by establishing best practices for cyber-fraud prevention. In addition, the MRC works with federal and local law enforcement agencies such as the Federal Bureau of Investigation, Secret Service, the U.S Department of Justice and the U.S. Postal Inspectors to help catch and prosecute cyber criminals. The survey was completed in June 2003. Responses were only accepted from MRC merchants that sell products or services on the Internet. The following analysis breaks down the survey respondents into one of four categories depending on their annual online revenues: Group NameAnnual Online Revenues Number of Respondents Small MerchantsLess than $100,000 46 Medium Merchants$100,000 - $1,000,00058 Large Merchants$1,000,000 - $25,000,00067 Very Large MerchantsMore than $25,000,00046 Survey Results: Merchants are spending more on preventing fraud. -- Merchants in general are spending higher rates of their revenue on fraud prevention, with 17% of merchants spending greater than 2% on fraud prevention this year, versus 13% in 2002. Chargebacks rates are down. -- The proportion of online businesses with fraudulent chargeback rates greater than 1% has reduced to single-digit levels, averaging an overall rate of 9.7%. This is significantly better than in 2002 when almost twice as many (18%) of the merchants experienced a greater than 1% fraudulent chargebacks rate. -- The overall average proportion of merchants with a fraudulent chargeback rate less than 0.35% is increasing markedly, from a rate of 48% in 2002 to 64% in 2003. Improvements are observed in all merchant groups, most notably among the small merchants who had a 31% improvement in this category. International fraud is still a big problem. -- 38% of responding businesses in 2003 declare international fraud to be out of control or a big problem. In 2002, 41% reported this level of concern. Merchants are planning to use Verified by Visa and MasterCard SecureCode to help fight online fraud. -- Use of Verified by Visa and MasterCard SecureCode is trending up as more businesses are implementing it. In 2002, an average of 31% had implemented or would be implementing one of these programs during the upcoming year. This average has now risen to 45% of companies surveyed in 2003. 16% of merchants have never heard of Verified by Visa, including over 20% of the medium merchants and the large merchants that have between $1 million and $5 million in online revenue. The Merchant Risk Council, a non-profit organization, consists of leading online retailers, vendors, financial institutions and law enforcement partners established to protect orders over the Internet. The Board of Directors consists of nine leading e-commerce retailers including Amazon, American Eagle Outfitters, Apple, Barnes & Noble, Best Buy, Expedia, HP, Yahoo and Zale Corporation.