Numbers: E-commerce Fraud will Cost Merchants $3.6 Billion This Year

As online retailers gear up for Black Friday and Cyber Monday–when they hope consumers will come in droves to spend money on their websites–they must also deal with another reality of electronic commerce: the increasing expense of preventing credit card fraud. E-commerce fraud will cost U.S. merchants $3.6 billion this year, a 20 percent increase over 2006, according to the ninth annual CyberSource Fraud Survey.

According to the study, which was conducted by CyberSource and Mindwave Research, merchants are losing more money in 2007 not because fraud is happening more often, but because keeping fraud at bay is becoming more expensive.

Merchants surveyed say they expect to lose 1.4 percent of their revenue to fraud in 2007, the same percentage that they reported losing in 2006. But they are spending more money on tools and annual review processes to keep fraud contained.

(To learn more about these tools and card-not-present credit card fraud, see our in-depth coverage, “Choke Point.”)

Although only 1.3 percent of orders turn out to be fraudulent, as a precaution, an average of 27 percent of all orders undergo manual review, a number that is rising. The survey estimates that 38 percent more orders were reviewed this year than last, costing merchants perhaps an extra $100 million.

Companies are also spending more money on automated anti-fraud tools. Order velocity monitoring, which flags suspicious purchase patterns, and IP geolocation tools, which can determine the origination point of an order to look for discrepancies with billing or shipping information, are two examples. Fifty-three percent of merchants surveyed use five or more fraud detection tools, and the largest companies use an average of eight.

For a copy of the complete survey results, visit  https://www.cybersource.com/fraudreport/.