December 27, 2004, 12:00 AM

Nearly half of online merchants expect fraud to rise in 2005, study says

Online payment fraud will increase next year, according to the largest percentage of online retailers in a survey conducted by CyberSource. 49% expect fraud to rise, while 44% expect it remain the same and 7% say it will decline.

Paul Demery

Managing Editor, B2B E-commerce

 

Online payment fraud will increase next year, according to the largest percentage of online retailers in a survey conducted by CyberSource. 49% expect fraud to rise, while 44% expect it remain the same and 7% say it will decline, CyberSource Corp. reports in its 6th Annual Online Fraud Report.

78% of survey respondents attributed expected increases in online payment fraud to more sophisticated and effective fraudsters; 68% attributed it to a higher incidence of identify theft. The study was based on a survey of 348 online merchants between Sept. 17 and Oct. 1.

The study found that online payment fraud remained nearly the same year-over-year as a percentage of revenue, at 1.8%, but that it rose 36.8% in total value, to $2.6 billion from $1.9 billion, reflecting the overall rise in online spending.

The study also found that e-retailers rejected 5.9% orders due to suspicion of fraud, a rejection rate up 28% from a year ago. It also found, however, that merchants used an average of five fraud-prevention tools, up from three last year. Among the most popular new tools merchants reported using this year:
-- customer history files (used by 51% of study respondents);
-- negative files (45%);
-- geolocation tools (31%), which attempt to identify the geographic origin of an order based on the Internet address of the customer.

Other popular tools, with their rate of usage among respondents, 2004/2003:
-- address verification service, a tool that compares the numeric address data in an online order with the information on file with the credit card issuing bank, 82%/6%;
-- Card verification number, a code number separate from account numbers and placed on plastic cards by the issuing banks, 56%/44%; -- Internally built fraud screens, 53%/49%.

The study found that online merchants add one manual fraud reviewer for every $8 million in incremental online revenue. (For larger merchants who review a smaller percentage of orders, the average is about $16 million in incremental revenues per additional fraud reviewer.) Merchants in the survey review an average of 19 orders per hour.

 

 

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