Online fraud a significant revenue loss for merchants

UK merchants say online fraud is the greatest threat they face, according to the Sixth Annual UK Online Fraud Report. Merchants stated that they lost an average of 1.8% of online revenue to payment fraud in 2009.

Based on the survey results, on average 1.6% of orders accepted proved to be fraudulent, although rates under 1% were common. The rate at which orders are rejected due to suspicion of fraud remains high at an average of 4.6%. This figure has been relatively consistent over the years and points to a continuing challenge for eCommerce merchants, since some of the rejected orders are likely to be valid, resulting in lost revenue.

The survey indicates one of the most dramatic shifts in recent years has been the increased awareness and concern about the theft of customer data. In 2007, just 6% of merchants ranked it as a serious threat. Over the past two years this figure has jumped to over half of merchants. It now ranks second only to online fraud in importance.

Merchants continue to rely on manual review. Over 70% of merchants surveyed manually check orders as part of their fraud management process; 5% manually review every order. Sixty-nine percent of manually checked orders are ultimately accepted, with one-third of merchants accepting more than 91% of reviewed orders.

On a positive note, 23% of merchants surveyed use a case management system to support their manual review process; not surprisingly, usage is higher amongst larger organizations (33%). These systems help to make fraud teams more productive by consolidating order information and accelerating the review process. This is particularly important given that 67% of merchants plan to make no changes to the size of their review teams in 2010.

For 2010, 69% of merchants are expecting their online revenue to grow year-on-year, up from 51% previously. As eCommerce sales continue to grow, and some resources remain relatively fixed, merchants will face the challenge of accepting more online orders, whilst keeping rejection and fraud rates low.

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