March 3, 2009, 12:00 AM

E-retailers active in fighting fraud report lower online fraud losses

Platinum members of the Merchant Risk Council lost 1.1% of their web revenue to fraud, compared with 1.4% for all merchants in a new survey by CyberSource Corp.

For the second year in a row, a major retailer survey shows lower online fraud losses for Platinum members of the Merchant Risk Council, which are larger merchants that participate in the council, which is dedicated to making e-commerce more safe and profitable.

The 74 Platinum member retailers among the 400 merchants that participated in the CyberSource Corp. survey last fall reported average fraud losses of 1.1%, compared with 1.4% for the entire sample and 1.3% for large retailers that are not council members, the Merchant Risk Council reported today. Platinum members of the council are online and multichannel retailers with at least $75 million in total sales.

The fraud rate for the Platinum members did move up from last year, when average losses were 0.8%. However, the median-the percentage at which half the sample was above and half below-increased more modestly from 0.45% to 0.50%.

For Platinum MRC members, the percentage of orders that turned out to be fraudulent went up from 0.56% to 1.1%, while for all respondents that rate fell from 1.3% to 1.1%. However, the median for Platinum members held steady at 0.2%, indicating some of the respondents had significantly higher than average loss rates. A third more MRC Platinum members participated in the survey this year, and 18% reported that more than 1% of their orders turned out to be fraudulent, versus 5% last year, according to CyberSource, a provider of payment-processing and risk-management services for online retailers.

In other findings from the report:

  • MRC Platinum members rejected 2.4% of orders on suspicion of fraud, versus 2.9% for the overall sample and 2.6% for other large non-member merchants.

  • MRC Platinum members rejected 6% of international orders versus 11% for the total sample and 12% for large non-member merchants.

  • Platinum members reported 3.2% of international orders turned out to be fraudulent, compared with 4.0% for the overall sample and 3.4% for other large online merchants.

  • Platinum members on average use 7.8 automated fraud-screening detection tools, versus 4.7 for the overall sample and 5 for other large non-member retailers.

“This survey shows that even though MRC members are allowing a much greater rate of online orders to be processed, they are actually experiencing a lower rate of overall fraud for both domestic and overseas orders,” says Tom Sullivan, chairman of the MRC, and senior director of Global Payments & Risk for online travel site Expedia Inc. “As merchants continue to look for ways to maximize revenues during tough economic times, accepting more valid international orders can be a great source of growth.”

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