Survey cites gains but setbacks in fighting eCommerce fraud

Merchants are making gains against fraud but the battle continues, says CyberSource in announcing results of its 13^th annual survey of eCommerce Fraud

CyberSource, a VISA company, says the fraud rate in percentages of fraudulent cases dropped from 0.9 percent in 2010 to 0.6 percent last year.

That was the lowest in the 13-year history of the survey.

However, the cost of combatting fraud continues to grow, the company says.

"Dollar losses were up, manual review continued to climb, and merchants reiterated their concern that fraud is becoming more difficult to detect," the company says.

"The continued growth in eCommerce is a welcome development for merchants and the economy overall," said Andrew Naumann, CyberSource Senior Business Leader, Fraud Management Solutions. He added:

"The bad news is that fraudsters took in a higher dollar volume, the first such increase we’ve seen since 2008. Our study shows merchants are working harder than ever to keep fraud in check, using more tools and reviewing more orders. Clearly the criminal element is growing more sophisticated."

In other findings: Twenty seven percent of merchants responding to the survey say they have made investments in true mCommerce channels (accept orders from a mobile app or mobile optimized browser). Among those tracking fraud rates in this comparatively new channel, the vast majority (92 percent) feel fraud is equal to or lower than that experienced with online orders.

On average, merchants say 1 percent of online revenues were lost to fraud in 2011, a slight increase over last year’s 0.9 percent. That translates to an estimated 2011 merchant dollar loss of approximately $3.4 billion.

This is the first time merchants have cited an increase in the fraud rate by revenue since 2004. The lower fraud rate by order, accompanied by higher estimated revenue loss, means fraudsters are stealing more expensive items –$250 on average vs. $150 on average for a valid order. Looking at fraud rates by category of merchandise, consumer electronics were the hardest hit by fraudsters, followed by digital goods. The former are among the most lucrative for resale, while orders for the latter are typically executed in real time, allowing little opportunity for further review.

The largest merchants tend to have the best results in fighting fraud, a reflection of those organizations’ use of more fraud detection tools and human resources, the company says.

The mostly flat estimates of fraud rate by revenue demonstrate merchant success in fighting fraud, but at a cost – they are using more tools and systems, and reviewing more orders. In 2011, merchants used an average of 4.9 fraud detection tools to automatically screen orders, compared to 4.6 the year before

By David Wilkening