Two-thirds of U.S. merchants are taking more online fraud precautions in 2002 than they did in 2001, according to the fourth annual CyberSource Fraud Survey. Added security tools include address verification service (AVS), data encryption, and penetration audits.
   Among the recently introduced security tools is Visa U.S.A.'s recently introduced requirement that high-risk online merchants register their businesses directly with the company.
   For many years, high-risk brick-and-mortar merchants and some direct marketing merchants have been registered with Visa U.S.A., the company says. "We believe it is appropriate to apply the same registration requirements to high-risk online merchants that present higher chargeback and fraud rates. These steps will also help Visa keep illegal activity from entering the Visa network, and continues our commitment to protect the interests of Members, merchants and cardholders alike."
   The better the issuers can control fraud, the lower interchange rates merchants will pay. Though rates may not come down, controlling fraud helps limit future increases.
   The CyberSource survey reports that 71 percent of merchants say they plan to use AVS, a means of ensuring an address supplied with the order matches the address attached to the buyer's credit card, compared to 46 percent the year before.
   To battle identity theft, 59 percent of merchants say they are now encrypting stored credit card numbers, an increase over last year's 48 percent. Penetration audits, checks to determine if a site has been hacked, have nearly doubled since last year (63 percent vs. 33 percent), and nearly half of the survey respondents (49 percent) now report having a paid risk management employee responsible for battling online credit card fraud.
   Merchants are taking the added precautions to keep pace with the continuing fraud problem, according to the survey. Most respondents declared that the percentage of transactions they expect to be fraudulent will be the same as last year -- about 3 percent. However, online sales are expected to grow in 2002, so that 3 percent translates to a considerably higher number to sellers.
   Fraudsters get especially busy during the holiday period. Twenty-nine percent of survey respondents believed they would experience more credit card fraud during the most recent holiday season than they did the year before.
   This is a big concern for merchants, many of whom depend on high volume holiday sales for profitability. The survey audience said 20 percent of their orders still require human intervention to screen for fraud.
   "Loss of online sales through fraud has been a problem since technology made Web purchases possible," said Bill McKiernan, CyberSource chairman and CEO. "But nobody, in this economic environment, can ignore even small percentage losses. So what is the alternative? The inevitable price of manual intervention is high administrative cost and customer anger due to delays in delivery. Automated fraud prevention pays for itself, and increasing numbers of merchants are accepting that proposition now."
   Survey numbers suggest merchants are confident their newly installed anti-fraud measures are working. The percent of respondents rating online credit card fraud a "serious" or "very serious" business issue fell to 46 percent this year from 59 percent in 2001.