Online retailers are losing a lower percentage of their sales to fraud, but paying a price in turning away more legitimate customers and manually reviewing more orders, according to a report from online fraud-prevention company CyberSource Corp., part of Visa Inc.
A survey of 307 U.S. and Canadian companies found that fraud cost retailers an average of 0.8% of online sales in 2015, versus 0.9% in 2013, the last time CyberSource conducted the survey. The declines were larger in other channels in which the consumer is not face to face with the retailer: mobile fraud fell to 0.5% of sales in 2015 versus 0.9% in 2013 and fraud from mail and telephone orders dropped to 0.5% in 2015 from 0.8% two years earlier.
The fraud rate on domestic online orders was 0.7% in 2015, versus 0.8% in 2013. The big decrease was in fraud from international orders, which declined to 0.9% in 2015 from 1.6% in 2012, after holding steady at around 2% from 2009 to 2011, CyberSource said in the report entitled, “Annual Fraud Benchmark Report: A Balancing Act.”
One way web merchants are reducing fraud is by rejecting more orders: That rejection rate increased to 2.8% of orders in 2015 from 2.3% in 2013. E-retailers fear many rejections are “false positives”—transactions that look fraudulent but aren’t. “The majority (70%) of survey respondents who track false positives believe that up to 10% of the orders they reject on suspicion of fraud are actually genuine,” the report says.
Another way e-retailers minimize fraud is to manually review suspicious orders, and the manual review rate ticked up to 29% of orders in 2015 from 27% in 2013. Larger retailers, which are more likely to have the resources to deploy sophisticated fraud-prevention tools, manually review the fewest orders: the manual review rate was only 8% for retailers reporting $100 million or more in annual online revenue, increasing to 18% for retailers with $25-100 million in web sales, 29% for those in the $5-25 million range and 41% for those with under $5 million in annual web revenue.
“According to our survey, businesses accepted 82% of orders following manual review—an indicator that more orders are being reviewed than is strictly necessary,” the CyberSource report says.
46% of respondents say the cost of personnel who conduct manual reviews represented the largest share of their fraud-prevention budgets. And for many, those budgets aren’t growing: 61% expect their fraud-management budgets to stay the same over the coming year and 7% expect they will decline, the report says.
The survey also gave the percentage of companies that have implemented the following fraud techniques or that plan to:
- Address verification service (AVS): 86% have implemented, 7% plan to
- Card verification number: 86%, 5%
- Postal address validation services: 67%, 11%
- Google Maps lookup: 64%, 4%
- Telephone number verification/reverse lookup: 51%, 9%
- Social networking sites: 46%, 6%
- Credit history check: 30%, 6%
- Paid-for public records services: 25%, 3%
- Payer authentication (3-D Secure): 23%, 20%
- Two-factor phone authentication: 13%, 15%
- Biometric indicators: 1%, 9%