A few years ago, who would have imagined that you could shop for anything from jewelry to furniture while sitting on your couch? Thanks to the explosion of e-commerce, online shopping has become more than just a fad. Online shopping has become a necessity for people who have little time or patience to go from store to store in search of that perfect bag or scarf!

But like all things good, ecommerce comes with its own set of issues; one of the biggest issues is online fraud. According to CyberSource, online merchants in North America lost an estimated $2.7 billion to fraudulent orders in 2010*.

Although there has been a steady decline in fraud losses over the last couple of years, the situation is still worrisome for the fast growing e-commerce industry.

Checks to Fraud

To prevent online fraud, e-retailers conduct manual reviews of the orders received. Online merchants set up fraud-review teams that perform manual checks on all orders received to see if they are fraudulent.

There are several problems with this system. First, it's expensive. Online merchants have to hire staff members to review these orders, and these reviewers have to be paid according to industry standards. Add to that the cost of training and you are staring at a huge expenditure.

Second, the manual review process is not efficient. Reviewers can only process a certain number of orders in a day and the quality of their work will depend entirely on their experience, knowledge as well as the quality of the processes established to review orders.

Third, there's always the possibility of human error when you're conducting manual reviews. This could lead to rejection of genuine and legitimate orders and cause further losses to online merchants.

Finally, manual review of orders is a time-consuming activity. Customers have to wait for their orders to be processed, validated and delivered. It can lead to unnecessary frustration and put them off a merchant for good!

Need for Automation

An automated phone verification system is one of the most effective tools to keep fraudulent orders at bay. Since it does not rely on human checks, the automated system is a lot more efficient than manual reviews.

Not only does an automated phone verification system reduce operational costs for online merchants, but it also leads to a better conversion rate for legitimate orders. That could be why automated fraud detection was identified as one of the highest priorities of the year for North American online merchants.

To understand how a typical automated phone verification system works, we can take the example of TeleSign's fraud defense process. This process is a combination of two products:
1. PhoneID: This product identifies the risk level of an order based on the characteristics of the phone number provided during a transaction.
2. TeleSign Verify: If the transaction is flagged as high risk, this product will verify the phone number provided. The premise is that a fraudster is unlikely to provide a contactable phone number.

The entire review process becomes much more simplified, streamlined and consistent. The genuine and legitimate orders get automatically accepted, while only the suspicious orders go through the manual review process. This leads to a quick turnaround time for processing orders.

Source:
*cybersource.com/news_and_events/view.php?page_id=1865

About the Author

Steven E. Collins is a web enthusiast and a baseball fan living in Los Angeles, CA. He has extensive experience in the field of Internet Security. He likes to share his knowledge through articles and blog posts on implementing security systems for online businesses. You can find him writing anything from best practices for online transactions to prevention of online fraud.