February 2, 2012, 11:25 AM

E-retail fraud rate hits a record low in 2011

But dollar losses grow as thieves steal more expensive items, CyberSource says.

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The fraud rate per order for online merchants in the United States and Canada decreased in 2011 to 0.6% from 0.9% in 2010, according to CyberSource, a subsidiary of payment card network Visa. The 2011 fraud rate represents the lowest rate in the 13-year history of the survey.

But dollar losses grew as criminals stole higher-priced items from e-retailers, the survey found. Those criminals stole an estimated $3.4 billion from U.S. and Canadian e-retailers last year, compared with $2.7 billion in 2010. Merchants on average reported that 1% of online revenue was lost to fraud in 2011, up slightly from 0.9% in 2010. The lower fraud rate per order and the higher estimated losses from fraud means criminals are stealing more expensive items from e-retailers, the report says, adding that consumer electronics and digital goods are prime targets for those online thieves.

“The continued growth in e-commerce is a welcome development for merchants and the economy overall,” says Andrew Naumann, CyberSource’s senior business leader for fraud management solutions.  “The bad news is that fraudsters took in a higher dollar volume, the first such increase we’ve seen since 2008. Our study shows merchants are working harder than ever to keep fraud in check, using more tools and reviewing more orders. Clearly the criminal element is growing more sophisticated.”

CyberSource defines the fraud rate as the percentage of accepted orders that later turn out to be fraudulent. The vendor based its findings on 325 survey responses from North American online retailers collected in September and October. The responses came from companies that, combined, took in $83.8 billion in online sales last year.

More online merchants are conducting manual reviews of orders deemed suspicious, the report says. 75% of respondents conducted manual reviews in 2011, up from 72% in both 2010 and 2009. Of those merchants, 27% routed orders through manual review, compared with 24% in 2010.  Merchants also are using more tools to automatically screen orders—an average of 4.9 in 2011, up from 4.6 in 2010. And bigger merchants (that is, those with more than $25 million of online revenue) used more fraud-detection tools, an average of 8 in 2011, up from 7.4 in 2010.

Other findings from the report include:

• Merchants rejected 2.8% of orders originated from North American in 2011, up from 2.7% in 2010. Merchants rejected 7.3% of orders originated from outside the United States and Canada, down from 7.6% in 2010.

• 27% of respondents have create mobile apps or accept orders from mobile sites; among those merchants, the vast majority, 92%, say fraud from mobile devices is lower than or equal to fraud from other computers.

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