Scoring Models Get Results, Make Gains with Online Merchants

Automated risk-scoring systems are starting to assume a higher profile among online merchants as they struggle to control transaction-fraud losses, rejection of valid orders on suspicion of fraud, and the costs of manual order review. David A. Glaser, director of professional services at CyberSource Corp., a Mountain View, Calif.-based transaction-processing gateway for e-commerce vendors, tells Digital Transactions News that risk-scoring models are now under active consideration or being installed in the back shops of a wide array of major online merchants. In a study CyberSource conducted among selected clients, he says, risk-scoring systems cut manual-review rates from 40% to 50%, depending on the merchant. It also chopped false-rejection rates anywhere from 37% to 96%, he reports. In part owing to results like this, “we're seeing risk scoring gaining momentum,” he told an audience of online merchants and direct marketers this week at a conference in Chicago sponsored by the Direct Response Forum. He later told Digital Transactions News there are “three to four” installations in the “pipeline” at CyberSource each month now. The technology, which screens order data, including credit card information, for out-of-pattern activity that may raise suspicions of fraud, is a particularly useful tool for large, enterprise merchants confronting hefty volumes of transactions, Glaser says. The tool is especially helpful, he adds, when it can compare order information against patterns established by the card user across multiple merchants. E-commerce merchants are eager to reduce the rate at which they manually review orders, a costly practice that fear of card fraud is driving up. According to a survey of 348 online merchants CyberSource conducted last fall, 73% were conducting such reviews, up from 65% in 2003. Those conducting reviews were examining just over one-third of transactions, compared to just over one-quarter the year before. And the proportion of orders reviewed across all merchants in the survey is now 27%, up from 23% in 2003 and 16% in 2000.