November 9, 2005, 12:00 AM

E-commerce fraud losses will total $2.8 billion in 2005, CyberSource says

E-commerce fraud losses will total $2.8 billion this year, up 8% over last year, with mid-size to large merchants experiencing the largest hikes, according to the 7th Annual CyberSource fraud survey.

Kurt Peters

Executive Editor

 

E-commerce fraud losses will total $2.8 billion this year, an 8% year-over-year increase, with mid-size to large merchants experiencing the largest hikes in fraud rates, according to the 7th Annual CyberSource fraud survey.

While the overall fraud loss rate remains relatively constant at 1.6% of revenue, fraud rates for mid-size merchants with annual sales between $5 million and $25 million increased to 1.8% of revenue from 1.5% in 2004, CyberSource says. Fraud rates for large merchants with annual sales over $25 million increased to 1.2% of revenues from 1.1%.

International commerce poses the highest risk, with order rejection and fraud rates about three times higher than the overall rate, according to CyberSource.

Larger merchants continue to rely on time-consuming, labor-intensive manual review, which can’t cope with the increases in order volume, the survey reports. Mid-size merchants reported manually reviewing 25% of their orders this year, up from 21% in 2004, with essentially the same staff levels, according to the survey.

As a result, the percentage of orders accepted that ultimately turned out to be fraudulent rose to 1.7% from 1.3%, CyberSource said. “Merchants used to be able to just throw people at this problem,” said Doug Schwegman, director of market and customer intelligence. “But there’s an inherent limitation to that solution.”

The rate of manual review for large merchants didn’t increase in 2005, but their fraudulent order rate increased slightly to 1.1% from 0.9%, CyberSource said.

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