Online Retailers Get More Precise IP Geolocation Service to Battle Fraud

Against a backdrop of an increasing number of online transactions requiring manual checking by Internet merchants to control fraud, transaction-gateway provider CyberSource Corp. this week introduced a service that lets merchants pinpoint customers' locations and write business rules to control whether, in light of this information, orders should be fulfilled. Total fraud losses for card-not-present retailers reached $2.8 billion last year, according to a CyberSource survey released last fall. The same survey said 73% of online merchants are performing manual review of suspicious transactions, with 35% of all orders coming in for this costly checking. That's up from 65% and 26%, respectively, in 2003. The new CyberSource service, part of its Decision Manager product, represents an enhancement of an existing system that provides merchants with a risk score based on the geographic location of the customer's Internet Protocol (IP) address. Some IP addresses, particularly certain locations overseas, are considered to carry greater risk of fraud than others. Fraud may also be indicated when IP locations do not match shipping or billing addresses entered by customers. With the new service, merchants can go beyond the risk score to obtain the country, state (or province), county, and city in which the customer's computer is located. The service also indicates the type of Internet connection customers are using. DSL and cable connections are not as risky as anonymized, or so-called masked, services or satellite connections, according to Mountain View, Calif.-based CyberSource, which serves more than 15,000 clients. The service, which the company says carries no additional transaction fee, also allows merchants to create rules that kick in automatically when mismatches or high-risk IP locations pop up. In this way, the company says, merchants can cope more efficiently with the rising numbers of orders they must refer for back-office review. The rules might determine, for example, that certain orders with mismatched or invalid IP addresses should be rejected, cutting down on the number referred for review. “Customers have told us that, in many instances, they need as much order specificity as possible to maximize their conversion rates and minimize their fraud,” said Kirsten Fry-Sanchez, vice president for product management at CyberSource, in a statement.