U.S. merchants could lose $2.6 billion to online fraud
U.S. merchants are expected to lose an estimated $2.6 billion to online fraud this year, up 37% or $700 million from last year’s estimate, according to the sixth annual survey of e-commerce fraud from CyberSource Corp.
Though the rate of fraud as a percentage of online revenues, 1.8%, is holding steady with last year’s rate of 1.7%, e-commerce is growing so fast that it will result in a larger absolute dollar loss, CyberSource says. Also contributing to the larger dollar loss is the fact that online fraudsters are attracted to higher-ticker items: the median price on fraudulently ordered merchandise in 2004 was $150, while the median amount for a legitimate purchase was $100, according to CyberSouce.
One particularly significant data point from the findings was the estimated rate of fraud experienced in international e-commerce. E-commerce transactions from outside the U.S. carry a higher risk for U.S. merchants, CyberSource found, with survey data showing that international orders are rejected twice as often as orders from within North America. Merchants who accept orders from outside of the U.S. and Canada say they reject more than 13% of orders on suspicion of fraud. Among those orders accepted, 3.8% do turn out to be fraudulent, which is almost three times higher than the overall rate.
Merchants` use of fraud tools is at an all-time high now. In addition to manual review, 82% of merchants use Address Verification Service, 56% use Card Verification Number checking, and 53% use internally-built fraud screens. The number of merchants using commercial fraud screening solutions grew 55% from the year before: 18% in 2003 and 28% in 2004. The median number of tools in use now is 5, and 40% of merchants are using 6 or more. Large merchants are the most likely to invest in automation, with 79% of those with $25 million or more in revenue having automated order screening systems.
"Businesses are telling us they`re seeing more sophisticated fraud attempts," says Doug Schwegman, CyberSource`s director of market intelligence. "Though many are succeeding in containing fraudulent order rates, the strain is showing in their rejection and review rates and their need for more tools."
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