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Payment fraud remains the greatest threat to online merchants

CyberSource : 27 January, 2010  (New Product)
Report from CyberSource dealing with Online Fraud in the UK shows an average revenue loss of 1.8% for online merchants during 2009 as a result of payment fraud
UK merchants say online fraud is the greatest threat they face, according to the Sixth Annual UK Online Fraud Report, an independent survey undertaken by CyberSource, the UK-based CyberSource subsidiary. Merchants stated that they lost an average of 1.8% of online revenue to payment fraud in 2009.

Based on the survey results, on average 1.6% of orders accepted proved to be fraudulent, although rates under 1% were common. The rate at which orders are rejected due to suspicion of fraud remains high at an average of 4.6%. This figure has been relatively consistent over the years and points to a continuing challenge for eCommerce merchants, since some of the rejected orders are likely to be valid, resulting in lost revenue.

"Online fraud represents a significant revenue loss for merchants," said Dr Akif Khan, co-author of the Fraud Report and Head of Client and Technical Services at CyberSource. "It's not just the cost of fraudulent orders that needs to be considered, but also the additional costs of rejecting valid orders, administration of fraud claims and paying for the maintenance of internal systems."

The survey indicates one of the most dramatic shifts in recent years has been the increased awareness and concern about the theft of customer data. In 2007, just 6% of merchants ranked it as a serious threat. Over the past two years this figure has jumped to over half of merchants. It now ranks second only to online fraud in importance.

Merchants continue to rely on manual review. Over 70% of merchants surveyed manually check orders as part of their fraud management process; 5% manually review every order. Sixty-nine percent of manually checked orders are ultimately accepted, with one-third of merchants accepting more than 91% of reviewed orders.

Khan continued, "These figures haven't changed significantly over the last year and it's a cause for concern that so many manually reviewed orders are actually accepted. Manual review represents a critical area of profit leakage. If not managed effectively it can be expensive, limit scalability and impact customer satisfaction. Merchants should focus on improving the accuracy of their initial automated screening so that only truly suspicious orders are subject to this additional layer of authentication."

On a positive note, 23% of merchants surveyed use a case management system to support their manual review process; not surprisingly, usage is higher amongst larger organisations (33%). These systems help to make fraud teams more productive by consolidating order information and accelerating the review process. This is particularly important given that 67% of merchants plan to make no changes to the size of their review teams in 2010.

A high proportion of UK merchants already accept orders from mainland Europe, the Americas and Asia Pacific. France, Germany, Italy and Spain are each served by over half of the merchants accepting international orders. In addition, 49% serve the US and 35% Australia. In 2010, merchants are planning to add a number of countries, with China being number one on the list.

Merchants should be vigilant when considering growth strategies. According to the survey, one in four UK merchants that accept international orders stopped serving certain countries due to high fraud levels - with 60% of respondents citing Nigeria as an example.

For 2010, 69% of merchants are expecting their online revenue to grow year-on-year, up from 51% previously. As eCommerce sales continue to grow, and some resources remain relatively fixed, merchants will face the challenge of accepting more online orders, whilst keeping rejection and fraud rates low.

"Protecting against online fraud must be a priority for merchants. Though we are making life more difficult for fraudsters, no organisation can afford to become complacent," said Khan.

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