Online merchants will lose $3 billion to fraud in 2006

Annual CyberSource survey pegs e-commerce fraud loss at $3 billion this year.

E-commerce fraud losses continue to grow, according to electronic payment and security management provider CyberSource. Fraudsters are predicted to siphon about $3 billion from U.S. e-commerce in 2006, a 7% increase over 2005, the vendor reports.

While the percent of revenue lost to fraud is estimated to have narrowed slightly -- from 1.6% in 2005 to 1.4% this year -- the dollar amount grew from $2.8 billion to $3 billion as e-commerce sales grew by more than 20%, CyberSource says in its eighth annual survey of e-commerce fraud, released Tuesday. CyberSource sponsored the survey, which Mindwave Research conducted in September and October.

As in years past, survey respondents report that orders coming from abroad tend to be riskier than those from the United States and Canada. Merchants say international orders are 2.5 times more likely to be fraudulent. In 2006, 2.7% of orders originating outside the United States and Canada were fraudulent, according to survey respondents.

On the technology front, more merchants are using fraud management tools to battle the culprits, Cybersource reports. Among the automated tools growing in popularity are IP geolocation products that evaluate the risk of an e-commerce transaction based on geographic data (used by 35% of respondents); order velocity monitoring tools that assess purchases based on metrics such as total dollar amount and frequency (33%); and positive lists that report buyers known to be good customers (21%).

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E-commerce fraud losses continue to grow, according to electronic payment and security management provider CyberSource. Fraudsters are predicted to siphon about $3 billion from U.S. e-commerce in 2006, a 7% increase over 2005, the vendor reports.

While the percent of revenue lost to fraud is estimated to have narrowed slightly -- from 1.6% in 2005 to 1.4% this year -- the dollar amount grew from $2.8 billion to $3 billion as e-commerce sales grew by more than 20%, CyberSource says in its eighth annual survey of e-commerce fraud, released Tuesday. CyberSource sponsored the survey, which Mindwave Research conducted in September and October.

As in years past, survey respondents report that orders coming from abroad tend to be riskier than those from the United States and Canada. Merchants say international orders are 2.5 times more likely to be fraudulent. In 2006, 2.7% of orders originating outside the United States and Canada were fraudulent, according to survey respondents.

On the technology front, more merchants are using fraud management tools to battle the culprits, Cybersource reports. Among the automated tools growing in popularity are IP geolocation products that evaluate the risk of an e-commerce transaction based on geographic data (used by 35% of respondents); order velocity monitoring tools that assess purchases based on metrics such as total dollar amount and frequency (33%); and positive lists that report buyers known to be good customers (21%).

Despite the increase in automated tool usage, however, more merchants than ever before are reviewing some orders manually. Among the study’s 351 responding respondents, 81% say they engage in some manual review of orders, compared with 73% last year. On the positive side, fewer orders are being reviewed manually: Merchants this year said they review 28% of their orders manually, down from 35% a year ago.

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