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Online fraud up at 40% of internet merchants

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One in eight businesses in 2008 suffered fraud losses in excess of 5% of total online revenues and rates of more than 1% are now common, according to a survey of 150 online merchants undertaken by secure online payment solution provider CyberSource.

The firm’s fifth annual UK Online Fraud Report found that 40% 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%.

Rates for approximately 13% of merchants climbed more than 20%. 37% of merchants now see revenue losses due to online fraud of 1% or more.

But the cost of fraud cannot be measured in direct losses alone, say the authors. More than one fifth of merchants reject over 5% of orders on suspicion of fraud, and some of these orders are likely to be valid. Merchants also have to shoulder the cost of implementing various anti-fraud tools and employing staff or outsourced service providers.

“UK merchants continue to bear a heavy burden of fraud, including high costs and consequent profit losses,” says Dr Akif Khan, co-author of the Fraud Report and the head of client and technical services at CyberSource. “There are hopes for promising new anti-fraud developments coming from government, but even with this kind of support the merchants’ principal protection will, for the most part, remain the tools and programmes that they can assemble in their defence.”

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% of merchants integrating the programmes. Approximately 60% of UK merchants now employ these services. The report also showed that many merchants continue to rely heavily on manual reviewers to identify fraud, with 10% reviewing every single order.

“Manual review often forms part of a merchant’s defence against fraud, but as a first line of defence it is both expensive and inefficient,” added Dr Khan. “With margins under pressure in today’s challenging economy, merchants should be looking to improve the use of automated fraud screening processes so that they only need to review those orders that are flagged as suspicious. This could have a significant impact on the cost of managing fraud.”

Readers can download a copy of the full report free of charge from the Cybersource website.

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