Fraud will cost e-retailers $500 million in holiday sales: Gartner
Online retailers will lose nearly $500 million in sales this holiday shopping season due to fraud and suspect transactions, says Gartner Group Inc. The research firm adds that e-retailers will reject 6% of overall sales transactions due to supected fraud, and that merchants are not getting the support they need from credit card issues in managing fraud.
"E-tailers report that fraud attacks are becoming more sophisticated, frequent, and menacing in nature," said Avivah Litan, vice president and research director for Gartner. "Despite efforts to curb online fraud, the rate of fraud has stayed constant at 1% since mid-2000."
Gartner notes that while e-retailers will reject 6% of sales transactions, or about $950 million in potential revenue, about 2% of those rejections, valued at about $315 million, will be inadverdently rejected due to unfounded suspicions of fraud. Gartner figures that fraud will directly cost e-retailers another $160 million. It combines that $160 million with the $315 million in advertent rejections to come up with a total of $495 million in lost sales.
Litan said Visa International and MasterCard International have not been giving online merchants the support they need in handling suspicious transactions. He added that merchants have expressed doubt about the effect recent initiatives by Visa and MasterCard can have on reducing fraud.
"Several leading credit card issuers have stopped taking online merchant phone calls in which the retailers request verification of credit card names and addresses when they run across a suspicious transaction," said Litan. "Major online merchants are also highly skeptical that new initiatives by VISA and MasterCard to address fraud through the Verified by VISA and MasterCard SecureCode programs will markedly reduce their fraud losses."
Gartner suggested that e-retailers institute a three-tiered program for managing fraud: 1) Apply real-time checks to look for fraudulent activity based on patterns of fraud abuses; 2) Weed out suspect transactions for further manual review; and 3) Engage in chargeback recovery whereby e-retailers collect money back from issuers for chargebacks that they wrongly absorbed.
Visa and MasterCard did not immediately return requests for comment.
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