Fraud will eat 3% of online sales this year, according to new survey

Fraud will siphon off an expected 3% of all online sales this year, a potential loss of $285 million for the holiday season alone, according to a new survey from payments processing provider CyberSource Corp. and independent research firm Mindwave Research.

“Loss of online sales through fraud has been a problem since technology made web purchases possible,” says Bill McKiernan, CEO of CyberSource. “But nobody, in this economic environment, can ignore even small percentage losses.”

While most merchants polled believed that over the course of the year the percentage of online transactions that prove fraudulent will be about 3%, the same as last year, the volume of online transactions overall is higher this year, resulting in a greater anticipated loss of dollars through fraud. Some 29% of the merchants expected online fraud to accelerate during the holiday season, while 61% said they believed it would remain constant with the rest of the year and 10% expected it to decrease during the holidays.

Most of the merchants polled-–two-thirds-–said they are taking greater precautions against online fraud in 2002 than they did last year. 71% said this year they planned to use an address verification service, a means of ensuring that an address supplied with the order matches the address attached to the buyer’s credit card, as opposed to only 46% the year before. To battle identify theft, 59% of merchants said they encrypt stored credit card numbers, an increase from last year’s 48%. And 49% said they now have a paid risk management employee responsible for combating online fraud.

Two-thirds of the merchants polled say they will implement additional anti-fraud measures in the future. The top two future strategies mentioned were Verified by Visa and Mastercard SecureCode verification services, cited by 38% of those polled, and card number verification, cited by 29%