Retailer Daily

E-commerce Fraud Drops

E-commerce fraud, one of the biggest challenges to online retailing, appears to be on the wane. This is the major finding of a new survey from payment management solutions provider CyberSource.

Online Fraud Dollars, Revenue Share Go Down

According to the survey, which CyberSource has conducted annually since 1999, projected 2009 fraud losses to U.S. and Canadian online retailers is $3.3 billion USD, a 17.5% decline from $4 billion USD worth of fraud losses reported in 2008. This is the first drop in estimated e-commerce fraud losses since 2003. In addition, online retailers project they will lose 1.2% of their online revenue to fraud this year, compared to a rate of 1.4% reported from 2006-2008. This is the lowest percentage revenue loss in the history of the survey.

International Online Fraud Improves

Other signs of improvement e-commerce fraud include a 50% reduction in fraud rates on international orders, which dropped from 4% to 2% of order volume as well as a 30% reduction in rejection rates of international orders.

Technology and Process Play Key Roles

Part of the reason for online retailers’ heightened success in reducing fraud may be an increased usage of fraud detection and prevention technology and processes. Sixty-seven percent of online retailers reported using automated decision tools to sort orders in 2009, compared to 56% in 2008. In addition, 60% of online retailers plan to improve automated fraud detection capabilities in 2010. Manual order tracking is also on the rise, with 68% of online retailers manually tracking the success of online orders this year, compared to 54% last year. In general, 33% of online retailers changed their procedures to better respond to fraud this year.

Other Data is Less Encouraging

A recent report on retail fraud from LexisNexis is decidedly less optimistic than the new CyberSource report, although its figures are less current. According to the 2009 LexisNexis True Cost of Fraud study, consumer-facing fraud (fraud which does not include insider or employee fraud) costs retailers $100 billion a year. Identity fraud constitutes $48 billion worth of that amount. While those figures include fraud perpetrated by all means, and not just online, they still indicate a different picture than that presented by the CyberSource study. The LexisNexis report also indicates that 24% of online retailers reported an increase in identity fraud in 2008. In addition, 43% of large retailers with an online presence reported increased credit card fraud and 20% of large retailers with an online presence reported increased debit card fraud.