CyberSource, a ChannelAdvisor partner and premier payment solutions provider, publishes an annual fraud report that should be required reading for every online merchant. Great statistics on fraud trends, prevention and tools employed by leading online retailers that puts this headache into perspective.
Last week CyberSource announced the results of its 8th Annual Fraud Survey (you can pre-register for a copy at CyberSource) with some positive news. While total losses in the U.S. increased to a whopping $3 billion, fraud as a percentage of overall eCommerce sales decreased from 1.6% in 2005 to 1.4% in 2006.
Here’s a few nuggets:
Overall, merchants say 1.1% of accepted orders later turn out to be fraudulent. This number has been relatively steady for the last 3 years (1.0% in 2005, 1.3% in 2004). But merchants also say they are rejecting 4% of orders on suspicion of fraud. Even if only 1 out of 5 of those prove to be valid, merchants will have turned away another $1.6 billion in sales — likely losing them to a competitor.
In response to fraud risk, more merchants than ever before are reviewing some orders manually. 81% of merchants in the sample now engage in manual review, compared to 73% last year. While the practice of manual review has increased, the rate of review may have peaked in 2005. On average, merchants who perform manual review are reviewing 28% of their orders, a 20% change from 35% in 2005. Larger merchants perform better than the average, citing review of one in seven orders.
Survey respondents said that in 2006, 2.7% of orders originating from outside the U.S. and Canada were fraudulent, a rate 2.5 times higher than the rate associated with U.S. and Canadian orders (1.1%). Merchants reject 12.7% of international orders, consistent with last year’s findings, a rate nearly 3 times that of orders originating in the U.S. or Canada.
Fraud rates depend on what you sell, your price point and where you ship, but I speak to a good number of merchants and there’s always a few that are very concerned about fraud and employ significant resources fighting it. Losing money to criminals is not a laughing matter, but my recommendation is always “keep the money with the mission”. Measure carefully to understand exactly how much you are losing and what you are spending to combat fraud. Then determine the point at which you are actually yielding a negative return on your fraud fighting investment.
More when the report is out with some perspectives from a few customers.
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