April 30, 2009, 12:00 AM

With fraud rates stable, merchants reject fewer risky orders

Online retailers are rejecting fewer orders for fear of fraud. But even though fraud rates are stable, e-retailers are investing in security.

After dropping steadily in the early part of the decade, fraud as a percentage of online sales has held steady at 1.4% the last three years, according to the 10th Annual Online Fraud Report from CyberSource Corp. What changed last year was that e-retailers rejected fewer orders for fear of fraud: 2.9% in 2008 versus 4.2% in 2007. Despite approving more purchases, actual fraud was only 1.1% of orders, within the range of 1.0% to 1.3% that’s prevailed for six years. Nonetheless, fraud losses grow with online sales, totaling $4 billion last year, up from $3 billion in 2006, the CyberSource report says. That helps explain why retailers are investing in fighting fraud: 25% say they’ll invest in technology that tracks the digital fingerprint of computers used to commit fraud, 19% in IP geolocation systems, and 18% in case management systems that, for example, show the percent of manually reviewed orders that turn out to be fraudulent.

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