Survey says fraud declined in 2011 as costs rose

A new study from fraud management company and Visa Inc. subsidiary CyberSource Corp. concluded that the e-commerce fraud rate dropped in 2011 to its lowest level in the 13-year history of the CyberSource fraud survey. However, the study also found that the cost of fraud is rising. In 2011, fraud prevention costs increased, dollar losses rose and merchants reported fraud is getting harder to detect, according to CyberSource.

Merchants that participated in the fraud survey said they found mobile commerce fraud is equal to, or lower than, they expected relative to online order fraud. The survey said there was a 33 percent drop in the incidents of e-commerce fraud in 2011 compared to 2010. Merchants reported, however, fraud losses as a portion of revenues rose to 1 percent of online purchases in 2011, representing about $3.4 billion.

"This is the first time merchants have cited an increase in the fraud rate by revenue since 2004," CyberSource said in the report. "The lower fraud rate by order, accompanied by higher estimated revenue loss, means fraudsters are stealing more expensive items – $250 on average vs. $150 on average for a valid order." The study found electronic and digital goods were the favorite targets of cyber criminals.

Beware international transactions

The study determined merchants used more fraud detection tools and more manual screening of orders in 2011, resulting in more expensive fraud prevention programs. "Merchants in 2011 ultimately accepted 75 percent of the orders that they manually reviewed, of which 6 percent turned out to be fraudulent – 10 times higher than the overall 0.6 percent fraud rate by order," the researchers said. "These figures suggest better pre-screening and more reviewer training are called for."

Rejection rates for international orders ran about 2.5 times that of domestic orders. "This prudence is warranted – the international fraud rate by order was 2.0 percent, over three times higher than the fraud rate by order for North American orders (0.6 percent)," the study said. The researchers further stated that merchants working internationally may want to add more sophisticated fraud detection tools, such as global transaction activity modeling, website behavior analysis, device fingerprinting and Internet protocol geolocation technology.

For a copy of the study, go to www.cybersource.com/fraudreport2012 .

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