Fraud takes bigger bite out of online revenues

One in eight online businesses suffered fraud losses in excess of 5 per cent of total online revenues in 2008, while rates of more than 1 per cent now common, according to a survey of 150 online merchants undertaken by CyberSource’s fifth annual UK Online Fraud Report.

Some 40 per cent of merchants saw their rate of fraud loss increase in 2008; slightly more saw their rates remain static. Overall, the rate of fraud increased 2.6 per cent: rates for approximately 13 per cent of merchants climbed more than 20 per cent; 37 per cent of merchants now see revenue losses due to online fraud of 1 per cent or more.

“The cost of fraud cannot be measured in direct losses alone: more than one fifth of merchants reject over 5 per cent of orders on suspicion of fraud, and some of these orders are likely to be valid,” says Dr Akif Khan, co-author of the Fraud Report and the head of client and technical services for CyberSource. “Merchants also have to shoulder the cost of implementing various anti-fraud tools and employing staff or outsourced service providers.”

The losses come despite continued investment by merchants in tackling the fraud problem. The addition of support for the Verified by Visa and MasterCard SecureCode schemes has been the most popular anti-fraud investment in 2008 with 16 per cent of merchants integrating the programmes. Approximately 60 per cent of UK merchants now employ these services.

The report also suggests that many merchants continue to rely heavily on manual reviewers to identify fraud, with 10 per cent reviewing every single order.

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