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November 16, 2009

Merchants winning the battle on eCommerce fraud?

Fraudsters' theft of online revenue drops 18% in 2009, shows CyberSource survey

By CBR Staff Writer

Merchants were fighting back against eCommerce fraud and seeing considerable evidence of success in 2009, according to a survey by CyberSource Corp.

According to the survey, the US and Canadian merchants expect to lose about $3.3 billion to eCommerce fraud this year, down from $4 billion last year.
This is the first drop in estimated revenues lost since 2003 and the merchants expect to lose on average of 1.2% of revenue in 2009.

The survey suggests merchant success has come as a result of many factors, including greater use of automated decision tools to sort orders. One-third of survey respondents this year said they had changed their procedures to respond to fraudsters and 68% now track the success of orders they have manually reviewed to get a better understanding of fraud management. Last year, only 54% of merchants tracked those successes and failures.

Mid-sized merchants, those with eCommerce revenues of $5m to $25m, were hardest hit in 2009, with 1.3% of accepted orders resulting in a fraud loss. While all industries showed the impact of fraud, by far the most challenged was consumer electronics. This segment had more than double the rejection rate of the next highest group, rejecting 6.6% of orders received. Consumer electronics also reported the highest fraudulent order rate at 1.5% to 67% higher than average, according to the survey.

The results showed that 54% of merchants now accept orders originating from outside the US and Canada, up from 51% in 2008. Fraud rates on international orders dropped 50% this year and order rejection rates dropped 30%. 72% of merchants manually review orders and, on average, review 28% of the orders they process. Larger merchants use more automated tools than their smaller counterparts, and achieve lower manual review rates (15%).

Doug Schwegman, director of market and customer intelligence at CyberSource, said: In an economy where many predicted fraud challenges would increase, eCommerce merchants in the US and Canada fared better than they have in the past against fraudulent online payment.

The survey also reported that 60% of merchants with eCommerce sales greater than $5m said their top priority was improving the automated detection and sorting capabilities of their systems for the year ahead period. 20% said they were looking to improve their process analytics capabilities, and 16% are focused to streamline the tasks and workflow around manual review.

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