Survey: Online fraud tops off-line

Online losses 19 times higher

STAMFORD, Connecticut (CNN) -- More than $700 million in online sales were lost to fraud in 2001. And that represented 1.14 percent of total annual online sales of $61.8 billion, according to GartnerG2, a program of business and technology research company Gartner.

Online fraud losses for 2001 were 19 times as high, dollar for dollar, as fraud losses resulting from off-line sales. And a new survey released by GartnerG2 shows that adult consumers in the United States are beginning to adopt credit card company solutions designed to protect against online fraud.

The Internet survey of more than 1,000 adult United States online consumers was conducted in January. It showed 5.2 percent of respondents saying they'd been victimized by credit card fraud in 2001 -- and 1.9 percent said they'd been victimized by identity theft (although respondents didn't know whether the theft had occurred online or off-line).

More than 18 percent of respondents said they're attempting to fight fraud by embracing two new credit card protection systems: Visa's Verified by Visa and MasterCard's Universal Cardholder Authentication Field (UCAF) standard, and Secure Payment Application (SPA).

QUICKVOTE Have you used online protection systems while doing business on the Internet with a charge card in the past year? Yes. No. Didn't know such things existed. View Results

"Consumers are willing to adopt the easy-to-use password-based applications," said GartnerG2 research director Avivah Litan.

"Other security schemes, including 'public key infrastructure' (PKI), smart cards (that the credit card firms also support) and disposable card numbers, receive far less consumer support," Litan said.

"Most consumers are unwilling to take the extra steps required to use PKI, as the failure of the previous MasterCard/VISA sponsored PKI-based Secure Electronic Transactions (SET) standard clearly demonstrated.

"Consumers also believe the new Visa and MasterCard systems offer better protection than PKI or smart cards, showing that branding is far more important than technically robust security schemes."

Merchants pay more for Net transactions

The credit card companies are, however, not yet willing to take the next major step: encouraging merchant adoption by universally lowering merchant fees.

MasterCard does plan to partially nudge United States merchants by making issuers, rather than merchants, liable for UCAF-protected transactions beginning in November 2002.

Visa plans a similar shift in liability rules in mid-2003. U.S. merchants will, however, continue to pay higher fees for Internet transactions, which average approximately 2.5 percent vs. 1.5 percent for in-store sales.

"Consumers are interested in using these new security systems, which can significantly reduce online fraud. The credit card companies should, however, back up their belief in these systems by lowering fees for all merchants who support them," Litan said. "This would guarantee even more widespread adoption."