The Internet Council of NACHA The Electronic Payments Association, Herndon, Va., expects to provide merchants with new information late in the second quarter to help them prevent fraud.
According to a Gartner Group, Stamford, Conn., study of companies that sell at 25 percent of their merchandise over the Internet, 7 percent of online sales are rejected for potential fraud, but just 1.13 percent are actually fraudulent.
"Managing risk and preventing fraud are both major concerns to organizations doing business on the Internet," said David L. Merritt, Chairman of the Internet Council and vice president and product design manager of Mellon Global Cash Management's new business development group.
The new fraud information from NACHA will come as a result of a pair of projects undertaken in January.
NACHA decided to undertake the projects because of continuing concern about fraud and identity theft, said Stephen Ingram, assistant director of the Internet Council, pointing to an FTC study in late 2001 that showed that identity theft was the top consumer complaint.
"Fraud risk continues to be one of the top concerns among all of the correspondence we receive," Ingram added.
Merchants and consumers need to be concerned, Ingram said, because they need to guard against fraud to ensure their businesses don't suffer. Consumers are less likely to buy from merchants known to have fraud problems.
"Through these projects, the Internet Council will assist organizations in identifying the types of risk and fraud that pose threats to their businesses, and in adopting methods to mitigate them," Merritt added.
NACHA's "Fraud 101" project will identify and catalog the various types of Internet payments fraud such as transaction-level fraud, identify theft, invalid accounts, and non-sufficient funds. The project will produce a white paper that provides guidance for preventing, detecting, and addressing fraudulent activity.
NACHA undertook a similar study in 1996 in anticipation of fraud that could be expected as e-commerce developed, but the new study will have a more recent and larger collection of data.
NACHA established the Internet Council in 1996 to facilitate the development of global electronic commerce by enabling business, governments and consumers to utilize present and future payments over open networks in a secure and cost-effective manner. The Internet Council has more than 100 members including financial institutions, companies, technology providers and government agencies.
NACHA's risk management project will focus on the risks of specific Internet- initiated payment types such as automated clearing house, credit card, online debit card, offline debit card, and person-to-person payments. Categories of risk include credit, operational, fraud, systemic and reputation risk, all of which can harm a merchant's business.
In addition to the fraud and risk management projects, a third new project will examine the application of Unified Modeling Language techniques and tools to ACH processes. The goal of the project is to produce a set of UML documents and diagrams that show ACH business processes and payment flows from various perspectives. This information will be used to educate merchants and others about the ACH payment system.