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With more consumers shopping and browsing online and via mobile and tablet devices, concerns around identity theft and the use of personal information online is also growing. The fraud prevention industry noticed the rapid growth of e-commerce in 2010, and the corresponding growth of fraudsters hoping to circumvent the system. While many online businesses are seeking to deploy the most current fraud prevention tactics to protect their customers, how are consumers responding to such efforts?

ThreatMetrix and the Ponemon Institute, an independent research firm dedicated to advancing responsible information and privacy management practices in business and government, recently engaged in a research study to examine this particular issue, finding that 85% of consumers are overwhelmingly dissatisfied with the level of protection online businesses are providing to stop fraudsters. There are a few key takeaways from the study that online businesses should keep in mind when trying to better protect against fraudsters and consequently drive purchases.

Forty-Two Percent of Consumers Report They’ve Been a Victim of Online Fraud

The joint Ponemon Institute and ThreatMetrix study revealed that the majority of survey respondents are worried about the measures online businesses are providing to stop fraudsters today, which is an increase from a 2009 Ponemon study that asked the same question. In the 2011 study, 42% of respondents indicated they have been the victim of online fraud, but about three in four of those consumers failed to report the crime.  Unfortunately, it’s difficult for online businesses to fully understand the prominence and severity of fraudulent activity when few online fraud victims take action and bring it to their attention. 

Based on survey findings, 56%of respondents are ‘more willing’ to shop or browse an online business if they know that company is taking specific measures toward combating fraud. This positive perception validates the importance for companies to use fraud detection tools and to communicate the trustworthiness of their brand through promotion of those tools.  While some e-tailers today are promoting “anti-virus” or “secure transaction” messaging online, they should also be touting “anti-fraud” messages as well. Businesses that fail to protect against identity theft risk losing customers’ trust, and most likely, future transactions. 

More Mobile Transactions Means More Mobile Fraud

With more consumers browsing and purchasing items on their mobile device, many online marketers seek knowledge around how comfortable consumers are with making transactions on this device and sharing their mobile location with a company. Results found that more than half of consumers would be willing to disclose their mobile location with a company -- if it meant protecting against online fraud. Respondents stated they were most comfortable sharing their location information with banks, followed by a certified third party that monitors potential fraudsters.

The study also found that mobile transactions were more likely to be fraudulent than web-based transactions. According to specific ThreatMetrix™ Cloud-Based Fraud Prevention Platform statistics, 2% of worldwide transactions came from a mobile device March 2011, with the most originating in the United States. Social networking companies already see about a fifth of consumer transactions coming from mobile devices as opposed to the web. When mobile transaction activity was broken down by industry, social networks topped the list, followed by alternative payments and e-commerce.

As mobile transactions continue to increase, brands need to consider a cohesive approach to fraud prevention across all device platforms and not just PCs. They should also consider customer’s last-minute purchases, and the fact that their convenience will demand real-time response via smartphones and tablets. Fraud platforms must be in real-time, with context-specific policies to adapt to consumer demands.

Fraud prevention providers recommend reviewing the existing authentication methods on mobile devices, otherwise online businesses risk good customers getting dismissed by outdated fraud models. By centralizing fraud intelligence across all web, app and mobile transactions, businesses improve fraud detection and reduce costs. Online companies should also consider redirecting web and mobile transactions and authentication processes through a common web channel. This ensures your fraud prevention measures are effective on all devices. 

Consumers Perceive Online Businesses to be the Worst at Fraud Prevention

Across four industries, consumers reported they are most confident in the banking industry’s ability to safeguard their personal information online, followed by credit cards and payment processors, social networks, and finally, online businesses – which may come as a surprise to some.

It’s logical that consumers have the most confidence in the banking industry’s ability to protect online information, since they’re responsible for customer’s funds. On the other hand, consumers appear to have more confidence in social networks than online retailers in regards to protecting personal information. This is supported by the Ponemon report, which found that 88% of consumers would not do business with banks or online payment processors if they questioned their security measures, followed by 77% for online businesses. 

Banks, online merchants, social networks and payment processors are all targets from fraudsters who phish their accounts for emails and passwords. When you bring e-commerce transactions into the picture, however, consumers are still wary about the security of that data. Banks understand the importance of promoting their fraud prevention measures to current and potential customers. Online retailers must also communicate how they protect information and detect potential fraudsters. Communication is the first step to increase consumers’ confidence in safeguarding their information to the point they are willing to complete a transaction.

Online Privacy Debate: Consumers Are Only Comfortable With Behavioral Tracking for Fraud Detection Purposes

In mid-April, Senators John McCain and John Kerry introduced a new bill, known as the Commercial Privacy Bill of Rights, which focuses on the security and management of personal information. This comes in response to privacy implications arising out of behavioral advertising. The bill seeks to protect data that is unique to a person, such as their name, physical address, email address, telephone number, Social Security number and credit card information. If the bill becomes a law, it would require companies to notify consumers when their personal information is being collected and oblige them to keep that information safe.

It’s a reality that the online privacy debate will be a point of contention for some time. While online advertisers, online marketers, fraud prevention agencies, online businesses and countless others all likely have an opinion on the topic, so do consumers. Consumers overwhelmingly shied away from allowing advertisers to track their behavior and consequently use that to target them with relevant offers, according to the study.

Almost three in four consumers, however, said they would allow a trusted online business to place an invisible cookie on their computer. This would automatically authenticate their access to a specific site and enable online companies to recognize repeat transactions from recurring fraudsters -- even when they change their IP addresses and customer details. Eighty-two percent of consumers went as far as to say that they would even allow an online business to offer alternative authentication methods if they were unable to match the consumer’s digital fingerprint to their system.

As 2011 continues to reflect changes in consumer behavior, online businesses – and online marketers -- must adjust how they think about online promotional activities just as much as they think about online fraud solutions. Staying one step ahead of advanced fraudsters will increase an online business’s ability to authorize returning customers, detect potential fraudsters and instill a sense of confidence in consumers when they are ready to complete a transaction or enter sensitive data online.