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Ecommerce sales rise – but fraud budgets remain on hold

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More than three-quarters of UK online retailers expect their businesses will grow in 2011, new research suggests.

According to Cybersource’s seventh annual UK Online Fraud report, to be released next week, 77% of UK merchants expect that their online revenues will grow over the coming 12 months, while 21% expect no change and only 2% forecast a decline. Nearly four out of five who predict growth expect it will be in the order of up to 40%. That comes after a year in which 82% expected their revenues would increase in 2010, while 59% thought they would not.

But while ecommerce income is set to rise, merchants also fear that payment fraud will increase too. The percentage of annual online income that businesses expect to lose to fraud in 2010 has dropped from 1.8% to 1.6%. However, retailers predict more transactions will prove to be fraudulent, rising from 1.6% to 1.9%. Some 39% of merchants expect to lose less than 1% of income to online fraud in 2010, however.

But in 2011, more than a third are expecting to see growth in the percentage of web revenue lost to fraud, although 64% do not expect the figure to grow.

Online fraud was ranked by the largest number of companies (59%) as their greatest business threat, followed by systems failure, which has overtaken the theft of customer data as a key concern.

However, points out Dr Akif Khan, director, products and services at Cybersource, (pictured) while a significant proportion are expecting rising fraud, many are not expecting to invest any more in fraud prevention areas such as manual review. The emphasis for 29% of respondents is on improving automated detection capabilities, while 31% said they’d be focusing on improving process analytics and streamlining task and workflow management (17%).

“There’s a lot of optimism among ecommerce merchants about growth in the year ahead,” said Khan. “But if you contrast that with the fact that 49% of merchants said they expected their fraud management budgets to remain static in the year ahead, with 10% saying they expected fraud management budgets to decrease, there’s a disconnect there between the expected growth most businesses are expecting to see in the year ahead and the growth they’re allocating to fraud management budgets, which in some cases are going to decrease.”

He added: “Clearly they’re going to be expected to do more with less, and need to make sure that fraud management processes are as optimized as possible.”

Nearly 60% of UK merchants now take online orders from abroad, the survey found. But that is also raising the possibility of fraudulent transactions. Perhaps surprisingly, the US is identified by survey respondents as the third most likely source of such transactions, after Nigeria and Ghana.

Khan suggests this is because the US has high levels of card ownership, and US consumers are more heavily targeted by fraudsters on phishing and other scams. “It shows that selling into the US is a real double-edged sword for UK merchants,” said Khan.

The report will be released on Tuesday 25 January 2010. To register for a copy of the report, visit: www.cybersource.co.uk/fraudreportregister.

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