Online fraud to hit $1.6 billion this year, CyberSource says
Online fraud will amount to $1.6 billion this year, or 1.7% of estimated U.S. online retail, travel and event ticket sales, CyberSource reports. Although fraud as a percentage of revenue is down from 2.9% last year, retailers are incurring more costs in their efforts to check fraud, says Doug Schwegman, director of market intelligence for CyberSource.
“On the one hand, we’re getting the rate down, but on the other hand, it’s a bigger problem,” Schwegman says. He notes that 66% of online merchants this year describe fraud as a “serious” or “very serious” problem, up from 46% last year, causing more merchants to conduct time-consuming manual reviews of orders. Merchants checked 23% of orders this year, up from 20% last year.
"With e-commerce continuing to grow rapidly, online fraud is casting a long shadow over the retail business in terms of both lost sales and overhead," said Perry Dembner, vice president marketing.
The survey also found that retailers turn away about 3.4% of orders because of suspected fraud. The rejection rate is about 7.8% for orders received from outside the U.S. and Canada, but 2.1% for orders within the U.S. and Canada.
CyberSource bases its fraud figures on a survey it conducted this year of 333 online merchants. It also found:
-- Online fraud as a percentage of revenue has steadily declined from 3.6% in 2000, 3.2% in 2001 and 2.9% last year to 1.7% this year;
-- 47% of merchants see a moderate to significant increase in fraud management costs in 2004;
-- Nearly 60% of online merchants have fraud rates of 1% or more;
--Online merchants with $25 million or more in annual sales reported fraud as 1.4% of revenue this year, compared to the industry average of 1.7%. CyberSource says this is apparently due to larger retailers having better tools and experience in fighting fraud.
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