Survey: E-commerce fraud will cost businesses $4 billion

Payment security vendor survey predicts more fraud than last year

Merchants are set to lose US$2.8 billion ($NZ4 billion) this year because of online fraud, according to a survey released by CyberSource, a provider of electronic payment and risk management products. The figure is 8% higher than last year, CyberSource says.

The survey, conducted by Mindwave Research, found that companies with online revenues of $US5-$25 million annually are being hit the hardest. Those companies saw online fraud losses rise from 1.5% of their revenue in 2004 to 1.8% of their revenue this year.

Online fraud losses suffered by merchants with more than $US25 million worth of online sales annually rose only slightly year over year, from 1.1% in 2004 to 1.2% this year, the survey says. Online fraud losses for smaller merchants, those with online revenues of less than $US5 million, were lower than last year, falling from 2.1% of revenues in 2004 to 1.6% this year, according to the survey.

Part of the problem is that while merchants are reviewing more orders manually this year to catch fraudulent orders, they're doing so without hiring more employees, says CyberSource spokesman Bruce Frymire. In fact, mid-size merchants said they reviewed one quarter of their orders this year, up from 21% of orders in 2004, he says.

Most merchants are so far relying on two basic means of fighting fraud: address verification systems, which compare the address on file at the card issuer to the billing address provided by the card holder, and checks of the card verification number — the additional digits printed on the credit cards, according to the survey.

More than half the merchants who took part in the survey say they're currently using or intend to use MasterCard's SecureCode or Visa's Verified by Visa payer authentication systems before the end of 2006, Frymire says.

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