Financial Insights Says Online Fraud Not As Severe As Perceived

FRAMINGHAM, MA -July 15, 2003 – While Visa's online payment authentication technology, Verified by Visa, has achieved a 40% enrollment rate among U.S. cardholders since its introduction in late 2001, a new study by leading independent research and advisory firm Financial Insights has found that merchant participation is lagging behind. On April 5, 2003, Visa instituted a rule protecting merchants for liability for fraud if they support Verified by Visa, but Financial Insights believes this will not be enough to compel large merchants to support the technology. A key finding of the report is that contrary to popular opinion, online fraud is not yet increasing the overall credit card fraud rate in the U.S. As the chart below shows, in 2002, fraud was less a percentage of total volume than it was in 1998.

While small online merchants may indeed be experiencing elevated fraud levels, the largest merchants are able to use fraud detection technologies to reduce their fraud rates close to offline levels. In order to secure participation from these merchants who already feel that their fraud technologies are working, both Visa and MasterCard must reduce interchange rates where online payment authentication is used.

"Merchant adoption is now the key to making Verified by Visa and MasterCard SecureCode universal standards,"said Aaron McPherson, research manager for retail payments at Financial Insights. "While protection from chargebacks is important, the largest merchants already have low fraud rates and will need lower interchange rates to see value from the technology."

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About Financial Insights, an IDC Company

Financial Insights provides independent research services to users and providers of financial industry technology. The company was formed in November 2002 by combining Meridien Research and the IDC Financial Services Advisory group. The Retail Financial Services practice offers four areas of focus: Payments, Channels, Customer Strategies and Wealth Management. The Capital Markets practice offers Trading Technologies and all aspects of Risk Management.

The Corporate Banking practice covers cash management, wholesale payments, trade finance, and small business banking. Each practice delivers reports detailing new issues and challenges and uses its knowledge to advise clients on technology related decisions. Financial Insights is an IDC Company, headquartered in Framingham, MA. Visit for more information.

IDC is a division of IDG, the world's leading IT media, research, and exposition company.