A Downturn for the Better

Honoring a time-honored tradition for the turn of the year, I’ve been looking back over the year just past to do a little retrospective trend-spotting.  Here’s one that took me by surprise: in spite of the downturn in the economy, there was also a downturn in online fraud. It’s counterintuitive–historically, hard times are correlated with rising crime–but apparently true.
 
Late last year, DigitalTransactions, an online publication catering to businesses engaged in the "electronic exchange of value," reported that the results of a survey of principals in these businesses showed an overall decline in fraud of about 1 percent.
 
The survey, sponsored and carried out annually by a California risk management company, is the first in its eleven-year history to show a fraud rate this low.  In 2009 North American merchants were expected to lose (a mere) $3.3 billion, in contrast to their loss of $4.0 billion in 2008.  
 
What’s behind this good-news downturn?  Probably not increased honesty.  There was no data on attempted fraud, and the assumption is that the increased use of automated fraud detection tools cut the merchant’s losses. The level of sophistication of these tools has ratcheted up to the level where neural network classification, risk analysis, and statistical analysis of correlated data can take place in real time during the processing of a transaction.  Furthermore, the combination of operational risk software with device identification of the purchaser’s computer now make it difficult for a single computer to mob an online merchant with multiple bogus orders.

So the good news is not about improvements in human nature.  It’s about improving the defenses of this booming sector of the economy.  

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