Two significant trends emerged from this study. Online fraud rates for merchants surveyed are now similar to the fraud rates of brick-and-mortar stores, and fraud spikes and fraudsters' use of increasingly sophisticated schemes keep retailers on alert.

Card-present fraudulent chargeback rates are usually less than 0.1% of sales. 48% of the online retailers surveyed said that their chargebacks match that rate, a significant improvement over previous years when online fraud outpaced card present fraud by as much as five times.

"The numbers show a very positive trend, but fraud still requires vigilance from online retailers," said Julie Fergerson, co-chairman of the Merchant Risk Council. "As fraud prevention tools gain widespread use, their effectiveness declines, and fraudsters are always looking for ways to beat the system. Most of our members realize this, and 76% of them have either maintained or increased their review staff levels, thus keeping their shoppers safe."

As the adoption of fraud prevention tools increases, their effectiveness often decreases, according to the survey. Since 2001, online merchants report that the effectiveness of Address Verification Systems, for example, has dropped from 70% to 25%, although its use rose from 70% to 83% over the same period. Similarly, the adoption of Card Verification Codes increased from 38% to 73%, but merchants report a decline in its effectiveness from 49% to 31%.

The survey was conducted in February of 2006. According to the survey, best practices and performance metrics among online retailers include:

1. Create metrics for your business and report these to management. Currently 63% of retailers who responded to the survey regularly report fraud metrics to C-level executives or directors.
   
2. Have a fraud rate, based on chargebacks, of less than 0.2%. Currently 66% of the retailers who responded have achieved this rate.
   
3. Review less than 10% of your orders for fraud. Currently 43% of retailers who responded have achieved this rate.
   
4. Use a variety of fraud prevention tools. The top five fraud prevention tools are Address Verification Systems (used by 83% of online merchants), customer follow up (81%), the use of Card Verification Codes (75%), real time authorization on the use of credit cards (67%) and post process fraud management - following up with the consumers when the order looks suspicious - (64%).
   
5. Continue to implement new technologies to combat fraud.