Merchants lose £400k a year to online fraud

A study has found that online traders consider fraud to be their top threat, while concerns about customer data theft have increased
Written by Matthew Broersma, Contributor

UK merchants say online fraud is now the greatest threat they face, costing them on average £400,000 in annual losses, according to a survey published on Tuesday by CyberSource.

The payments processing provider's sixth annual UK Online Fraud Report found that traders lost 1.8 percent of their online revenues to scams in 2009, with an average of 1.6 of orders accepted proving to be fraudulent.

Online businesses rejected an average of 4.6 percent of orders on suspicion of being scams, a figure CyberSource said was worrying, partly because some of the rejected orders were likely to be valid.

"It's not just the cost of fraudulent orders that needs to be considered, but also the additional costs of rejecting valid orders, administration of fraud claims and paying for the maintenance of internal systems," said Akif Khan, the CyberSource executive who co-authored the report, in a statement.

Khan said merchants' concerns about customer-data theft have risen dramatically in the past three years. In 2007, six percent of those surveyed by CyberSource ranked this as a serious threat, but that figure has now risen to more than half of respondents (52 percent).

CyberSource said online stores are still relying too heavily on the manual review of orders, with more than 70 percent of those surveyed including manual checking as part of their fraud-management process, and five percent manually reviewing every order. The report noted that 69 percent of the manually checked orders ultimately go through, with one-third of merchants accepting more than 91 percent of such orders.

These figures indicate that automated processes could be used to cut down on the number of orders reviewed, and thus on the costs of the manual review process, Khan said.

"Merchants should focus on improving the accuracy of their initial automated screening so that only truly suspicious orders are subject to this additional layer of authentication," he wrote.

Another area where companies could do more to limit their expenses is in disputing customer claims of fraud, the survey found. Merchants won disputes 34 percent of the time, on average, and CyberSource recommended that more companies challenge the claims.

Looking forward, the survey found merchants had better expectations for e-commerce for 2010, with 69 percent anticipating that their online revenues will grow. That compares with 51 percent in the previous year's report.

About half (49 percent) of respondents were retailers of physical goods such as clothing or books, with the remaining half roughly evenly split between services, travel and digital goods such as publishing and social networking. The survey included small, medium-sized and large businesses.

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