November 17, 2009, 12:00 AM

Retailers’ online fraud losses hit a record low, CyberSource says

Online retailers expect to lose only 1.2% of sales to fraud this year, the lowest percentage in 11 years, according to a new survey. E-commerce fraud will cost North American merchants $3.3 billion this year, down from $4 billion last year.

Zak Stambor

Managing Editor

Web merchants say they are making significant headway in combating fraud, according to an annual survey released today by CyberSource Corp., a provider of payment processing and risk management services to e-retailers.

Online retailers expect to lose only 1.2% of sales to fraud this year, the lowest percentage in the 11 years that CyberSource has conducted this survey and down from 1.4% the previous three years. E-commerce fraud will cost North American merchants $3.3 billion this year, the survey suggests, a decrease of nearly 18% from $4 billion last year.

“The e-commerce fraud picture has typically been one of worsening merchant losses,” says Doug Schwegman, CyberSource director of market and customer intelligence. “This year, merchants have won back some ground. In an economy where many predicted fraud challenges would increase, e-commerce merchants in the U.S. and Canada fared better than they have in the past against fraudulent online payment. There are still many ongoing challenges, including better and more sophisticated efforts on the part of fraudsters, but it is a pleasure to report on progress made.”

The survey also found:

  • Retailers are using more fraud-fighting tools. 67% of retailers say they use automated decision tools to sort orders, up from 56% last year. Among merchants that do more than $25 million in annual online sales, use of technology that identifies orders by the physical characteristics of the shopper’s computer, often called its fingerprint, nearly tripled to 18%; and 45% of large merchants say they plan to implement the technology in 2010.
  • One-third of merchants say they have changed their processes to respond to fraud. 68% track the success of orders they have manually reviewed, versus 54% last year.
  • Criminals are becoming more sophisticated. One in five respondents say fraud schemes are more complex this year, and nearly half say fraudulent orders look increasingly legitimate.
  • Retailers of consumer electronics-items easily resold by criminals-reported the highest fraud rate at 1.5%. These retailers rejected 6.6% of orders, more than double the rate of the next highest category.
  • 54% of responding retailers say they accept orders from outside of the U.S. and Canada, up from 51% last year. Among those selling abroad, international orders represent 21% of volume. The fraud rate on international orders dropped 50% from 4% to 2%, but remains well above the domestic rate; the order rejection rate dropped 30% from 10.9%, but at 7.7% remains more than triple the average for domestic orders.
  • Of all e-commerce orders, 20% are manually reviewed. 72% of merchants manually review orders, and those that do say they look at 28% of orders. Larger merchants use more automated tools (7.3 on average) than smaller retailers (4.7), and larger retailers manually review fewer orders, 15% on average.
  • 60% of merchants with online sales of more than $5 million say their top goal is improving automated detection and sorting capabilities. 20% aim to improve process analytics and 16% to streamline the manual review process.

 

The results are based on responses from 352 retailers surveyed from Sept. 10 through Oct. 7.

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