With merchants facing a projected 16.4% increase in U.S. card-not-present fraud by 2021, many are relying more and more on automated screening tools to cull bad transactions from the pile of good ones. That’s the assessment from Aite Group Inc. in its report, “The E-Commerce Conundrum: Balancing False Declines and Fraud Prevention,” released this week.
This fraud will increase from an estimated $5.5 billion this year to $6.4 billion in 2021. “CNP fraud losses continue to increase globally due to the wealth of data available from data breaches and other sources,” Shirley W. Inscoe, a senior analyst at Boston-based Aite, says in an email. “Some countries that saw a decline last year are seeing these losses on the rise again. CNP fraud is a low risk/high reward crime, and will continue to grow until major changes occur.”
One looming change is the adoption of EMV 3-D Secure 2.0, a fraud-prevention tool from the card brands that adds an authentication layer to transactions. Among the many options to fight online fraud, 50% of the 100 respondents to a survey included in the Aite study say they intend to implement 3-D Secure 2.0 in the next 18 months. Twenty-one percent say it’s likely they’ll adopt it.
Card brands and issuers may hope for that outcome, especially in light of the poor adoption of the earlier iteration of 3-D Secure that turned off many merchants. But it may not happen that quickly, Inscoe cautions. “This is unlikely to come to fruition that quickly, but it is impressive that 50% of merchants have this as a goal,” she says. “Many of them will implement in that timeframe, and others will likely take longer than 18 months.”
Online merchants also must contend with false declines, which mark legitimate transactions as bad ones. The research found that 62% experienced increases in their false decline rates in the past two years. Most merchants—79%—track false decline rates as a key metric.
And though 72% of merchants intend to add or make changes in the next 18 months to automated fraud-screening products they use, many continue to use manual reviews for some of their transactions. This process can be time-consuming and requires employee expertise. Fifty percent of manually reviewed transactions are subsequently approved.
Inscoe expects the human-centered tool to have a long-term e-commerce role. “There is no automated tool that can eliminate manual reviews entirely (unless the merchant is willing to lose some increased percentage of sales),” she says. “The goal is for the fraud solutions (used by all parties in the transaction chain) to be more accurate, and reducing the need for manual review to a lower percentage of total transactions.”