E-Commerce Fraud on the Rise

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E-commerce fraud is big business. Web-based shopping scams will cost U.S. merchants approximately $3.6 billion in 2007, an increase of 20 percent over 2006 levels, according to a report commissioned by security company CyberSource.
Though incidents of fraud increased slightly, actual revenue loss from online shopping scams held steady from 2006 at 1.4 percent, according to findings released Tuesday. A final white paper will be released in January, according to a CyberSource spokesman.
Researchers from Mindwave Research surveyed 318 companies that have online operations primarily in the United States and Canada. Forty percent of respondents are CyberSource customers.
About 1.3 percent of 2007 online orders were fraudulent, an increase of 1.1 percent over last year. Retailers have been taking extra care to monitor transactions for signs of fraud, however, and they rejected approximately 4.2 percent of 2007 orders. Online stores now review about 27 percent of their orders, up from 23 percent last year. As a result, three out of four e-commerce purchases are actually legitimate, the study said.
In the case of suspected fraud, 37 percent of respondents said they allow two to three business days for the customer to respond before the transaction is canceled. Ten percent said they cancel it in half a day or less, while 19 percent give six days or more.
The largest retailers use an average of eight fraud screening tools, the report said. Use of automated fraud detection tools increased by 2 percent over the last year. The most popular tool is address verification, used by 80 percent of respondents. About 74 percent use card verification numbers, while 39 percent have company-specific fraud screening in place, the study said.
About 59 percent of retailers accept international orders, though these purchases are 2.8 times as likely to be fraudulent, CyberSource found. A majority of the overseas orders come from the United Kingdom, Australia and Germany.

source: pcmag.com/article2/0,2704,2216470,00.asp