Internet Fraud is Driving New Technologies to Safeguard Online Payments

Consumer and business concerns about Internet security are well founded. Amid an explosive upsurge in hard dollar losses and a holiday shopping season plagued with ever-changing scams, fraudsters continue to take advantage of the Internet's anonymous transaction environment -- with everyone from one-time hackers to organized crime testing the market's boundaries.

In the face of these threats, momentum is building for a new breed of technologies and services to protect consumers, companies and financial institutions. New research from TowerGroup examines the rapidly evolving range of authentication and fraud detection tools and methodologies being deployed to secure both consumer and business online payment environments.

Highlights of the research include:

  • TowerGroup estimates that current technology solutions for fraud detection typically identify just 50% to 70% of all fraudulent payment transactions, addressing only a portion of existing Internet fraud. Yet these solutions offer the potential for strong return on ivestment, due to the magnitude of merchants' total fraud losses in today's Internet environment.

  • Originators of Internet fraud benefit from their ability to replicate similar crimes in different environments that have not established methodologies to identify or halt specific scams. Today, many providers of Internet fraud detection services incorporate extensive database assessments and analysis of "velocity data" across multiple merchants. However, TowerGroup believes that the rate of fraud growth across the Internet demands greater cooperation among service providers and merchants, requiring increased data sharing or a consortium approach to control the epidemic of fraud.

  • Today, fraudulent merchant sites and "phishing" scams commonly lure consumers or businesses into providing vital identity and account data to unknown and untrustworthy entities. TowerGroup believes that bilateral authentication technologies will become increasingly important in stemming this problem, by enabling a consumer or business to authenticate a Web site before providing identity and account- sensitive information.

"While there are a growing range of solutions on the market to help merchants tackle the problem of Internet fraud, there are also significant opportunities to continue to improve the functionality, breadth and scope of these products," said Elizabeth Robertson, a senior analyst in the Global Payments practice at TowerGroup and author of the research. "Internet fraud is dynamic, and solutions must be capable of rapidly evolving to meet the ever-changing demands of the Internet transaction environment."

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