The Cybersource 8th Annual Online Fraud Report estimates that over $3 billion in online revenues was lost due to online fraud. The Internet Crime Complaint Center or IC3, which is a partnership of the FBI and the National White Collar Crime Center, stated in its annual report that there was $198.44 million lost by consumers in the fraud cases that they referred to law enforcement agencies in 2006. The average loss per complaint was just over $2500.00. Both buyers and sellers lose when online businesses are vulnerable to ill intentioned web users.

There are generally 2 types of fraudulent orders that are placed online. First there is an order that is being placed merely to check the validity of the stolen credit card information. A criminal will go to a website where he knows that the credit card is going to be billed immediately for products and services. They will place an order for something that is usually about $100.00 or less. Once the order goes through and the credit card is successfully billed, they know the stolen information is valid. Then they are free to place the second kind of order where they are actually looking to receive the products that they purchase with the stolen credit card information.

Currently, some of the most popular online fraud protection solutions include address verification, card verification number (CVC2, CVV2, CID depending on the card issuer), and IP geolocation. The downside to these solutions is that the address and card verification number can both be stolen along with the credit card number and IP addresses can be masked. 81% of online merchants also use manual order verification. Besides the increased costs associated with the extra time and staff that it takes to manually review the orders, it also slows down the order process and extends delivery times.

Traditional solutions allow the fraudulent order to be placed and then attempt to weed them out afterwards. The next generation of automated online fraud protection solutions deter the perpetrator from placing the fraudulent order in the first place. Taking the crook completely out of the equation allows online merchants to focus resources on fulfilling genuine orders and servicing current customers.

One of these next generation fraud protection solutions that is gaining popularity among online merchants is televerification. Televerification works like this: When the customer goes to place an order, they are asked for their telephone number. An automated telephone call is then placed to the customer and they are given a unique security code, either through automated message or SMS. They then enter that unique code into the appropriate place on the web site in order to proceed with their business. The process is quick and easy, yet the protection it affords businesses and their customers is extremely effective.

Requiring the confirmation of a workable, traceable telephone number lessens the attractiveness of that particular online business to ill intentioned users. Criminals are leery about providing a legitimate phone number that can be traced back to them. The benefits that are inherent to implementing any automated fraud protection solution for online merchants still apply: reduced chargeback costs, reduced manual verification costs and increased user confidence. The difference with televerification is that instead of catching the fraudulent order after it has come in, it stops them at the door.

An additional benefit of televerification is the ease of which it can be integrated into an online merchant's existing website. All it takes is adding a few lines of code to an existing site that will allow it to interact with a televerification provider's server. Most applications can be up and running within hours, not days or weeks like some solutions.

With eCommerce growing 20% or more each year, fraud protection for merchants and customers becomes an ever increasingly vital issue for the entire online community. Billions of dollars are lost every year due to criminals taking advantage of the anonymity that the Internet offers. Previously, online merchants could only try to weed the fraudulent orders out from the good ones as they came in. The next generation of fraud protection allows online merchants the opportunity to stop the fraudulent orders from ever being placed.