ClearCommerce Identifies New Patterns in Online Fraud; ClearCommerce Helps Retailers Prevent Theft and Realize Full Potential of Online Holiday Sales Growth.

Feature Editors/Business Editors/High-Tech Writers

AUSTIN, Texas--(BUSINESS WIRE)--Nov. 18, 2003

ClearCommerce Corp. today divulged the results of its comprehensive market study of online fraud, in recognition of the escalation in fraud likely to go hand in hand with projected growth in 2003 online holiday sales. Increases in online shopping translate to increases in the frequency and sophistication of fraud attacks. In its market study, ClearCommerce identified a startling increase in fraud among transactions validated with Address Verification Systems (AVS), indicating the need for more comprehensive fraud prevention arsenals.

The dramatic rise in identity theft, affecting more than 33 million consumers, has created new avenues for fraudsters to commit online crime. To help retailers combat these fraud attacks, ClearCommerce conducted a study to identify emerging trends on how fraud is carried out. This research from the ClearCommerce Fraud Data Consortium (CDC), an extensive database of detailed Internet transactions compiled from thousands of online merchants, found an almost 80 percent increase in AVS-match order fraud activity. AVS, which verifies a U.S. customer's billing address with the address on record, is the most widely used fraud countermeasure for online retailers today.

"Fraud attacks committed by networks of online criminals that organize to strike quickly on targeted companies are disastrous to profits," said John Feehan, vice president of financial operations for Virgin Mobile USA LLC. "Merchants are bearing the brunt of losses caused by these sudden fraud attacks, which can be significant, particularly during the holiday season. Requesting address verification with payment authorization is no longer enough to prevent fraud, and it can lead to unnecessarily rejected orders, lost revenue and charge-back increases."

Through identity theft, fraudsters are able to gain access to cardholder billing information, allowing them to pass the AVS screening. Because most merchants trust orders with a full match, a fraudster that assumes a cardholder's identity can escape checks and verifications. As ClearCommerce's study has shown, a single fraud-prevention solution, such as AVS, will not protect merchants, and ultimately consumers, from the effects of fraud.

"Following double-digit growth in online retail sales in the fourth quarter of 2001 and 2002, we are expecting continuing robust growth of online holiday sales in 2003," said Avivah Litan, vice president and research director for Gartner Inc. "In 2002 Gartner estimated retailers lost nearly $500 million to fraudulent transactions and missed sales during in the fourth quarter. Online fraud cost retailers $160 million, while they rejected an additional $315 million of attempted purchases because they appear suspicious."

"Fraudsters zero in on merchants to attack quickly without warning, resulting in a significant financial impact," said Robert Lynch, president and chief executive officer of ClearCommerce. "These sudden attacks inflict hefty losses that can wipe out quarterly profits. ClearCommerce is committed to arming merchants with the knowledge and complete fraud-prevention solutions to protect revenues and avoid fraud attacks. Informing retailers that reliance on AVS screening is not a complete fraud solution is one way to begin to combat the problem."

Tips for Maximizing Online Holiday Sales

Retailers have a variety of solutions to address the increased sophistication of online fraud, and every merchant should implement a mix of basic steps to minimize fraud. ClearCommerce recommends that merchants put into operation the following safeguards:

-- Leveraging issuer-supported verification tools. Although these

solutions offer limited protection as stand-alone tools, they

do have value when used in conjunction with other detection

methods. All online merchants should validate the consumer

billing address through AVS (for U.S. consumers) and require

the card verification code, especially for new customers.

-- Verifying suspicious orders. Online merchants should be able

to flag orders that look suspicious and have an employee

review them prior to shipping. High-dollar orders, especially

those consisting of a large number of small products, should

be reviewed. For example, a merchant that receives an order

for $2,000, made up of 25 MP3 players, should be suspicious

and verify the order with the prospective customer. Small

consumer electronics are easy resold on the street.

-- Implementing a negative database. Successful fraudsters are

likely to attempt the same crime against the same merchant

again. Merchants should keep track of those that have

committed fraud with a "negative database" that contains key

pieces of information from previous fraudulent orders. New

orders should be compared to the negative database, and those

that have matching characteristics should be flagged for

review. Key fields to include in a negative database are the

shipping address, e-mail address, Internet Protocol address

and credit card numbers.

-- Reviewing before rejecting. Missed sales opportunities not

only cost retailers millions of dollars each year, but also

result in lost repeat business from the offended consumers.

Retailers should remember that their best customers,

especially during the holiday season, may behave similarly to

fraudsters, placing larger-than-usual or multiple orders. When

possible, suspicious orders should be verified rather than

automatically canceled.

-- Implementing a multilayered fraud-detection system. Merchants

should select a comprehensive fraud-prevention platform that

includes sophisticated order-screening rules,

merchant-configurable velocity checks, neural network risk

scoring, international IP address location and an automated

order review assistant to address a variety of fraudulent

activities. Fully automated screening and review tools can

significantly reduce the cost of order processing and enable

merchants to scale to rapidly growing online sales.

Fraudsters have evolved into organized criminal groups that have identified card-not-present fraud as a fast and effective way to steal merchants' hard-earned income. Their attacks are more coordinated, the losses are larger and retailers' vulnerabilities are more frequently exploited. ClearCommerce recommends that merchants prepare to take full advantage of increasing online holiday sales by establishing a multilayered defense of tools and procedures before fraud attacks occur.

About ClearCommerce

ClearCommerce is the leading provider of e-commerce fraud detection and payment processing software that enables merchants and service providers to safeguard and automate online financial transaction processing. ClearCommerce software is used by 65,000 businesses worldwide, including customers such as Apple Computer, Barclay's, Best Buy, PetsMart and Staples. ClearCommerce solutions feature patent-pending risk management technology as well as real-time payment processing. More information can be found at http://www.clearcommerce.com/.