UK e-tailers losing £400,000 a year in fraud

1.6 per cent of online orders are fraudulent

UK merchants believe that online fraud is their number one threat, and each has racked up an average £400,000 a year in resulting losses, according to the sixth annual Online Fraud Report from payments provider Cybersource released today.

The firm found that 1.6 per cent of orders proved to be fraudulent, and that merchants lost an average of 1.8 per cent of online revenue to payment fraud in 2009.

Yet many online retailers are needlessly losing even more money in fraud-related costs by failing to optimise their manual review processes, the report found. Some 70 per cent of retailers manually check some orders for fraud, yet few plan to increase the size of their reviews teams, despite most expecting to take more orders next year.

Report co-author Akif Khan argued that retailers will have to do a careful cost-benefit analysis to ensure that anti-fraud measures do not end up costing more than the expected fraud losses. He added that rolling out case management software to manual review teams could help to realise efficiency gains.

Khan also pointed out that a third of merchants accept 91 per cent to 100 per cent of orders they manually review.

"This suggests that the rules in their automated screening are not optimised and are needlessly sending good orders to review, so merchants need to carefully analyse these because optimising rule sets are key," he said.

"The report also found merchants rejecting 4.6 per cent of orders. Some will be false positives, so it's important that merchants don't reject good orders or it could mean a lifetime of lost revenue if a customer goes elsewhere."

Merchants that dispute charge backs win on average 34 per cent of the time, according to the report, showing that more retailers should challenge customers claiming to have been defrauded.

Finally, the report found that in too many cases, customer cardholder data is spread out across the organisation, in finance, customer services, loss prevention, sales and other departments, making it difficult to secure.