Fraud is taking a bigger bite out of UK online revenues. One in eight businesses in 2008 suffered fraud losses in excess of 5pc of total online revenues, while rates of more than 1pc are now common.
The figures come from a survey of 150 online merchants undertaken by CyberSource Ltd., the UK-based subsidiary of CyberSource Corporation. The survey was conducted by research group Vanson Bourne.
Some 40pc of merchants saw their rate of fraud loss increase in 2008; slightly more saw their rates remain static. Overall, the rate of fraud increased 2.6pc. Rates for about 13pc of merchants climbed more than 20pc. Some 37pc of merchants now see revenue losses due to online fraud of 1pc or more. But the cost of fraud cannot be measured in direct losses alone: more than one fifth of merchants reject over 5pc of orders on suspicion of fraud, and some of these orders are likely to be valid. Merchants also have to shoulder the cost of implementing various anti-fraud tools and employing staff or outsourced service providers.
"UK merchants continue to bear a heavy burden of fraud, including high costs and consequent profit losses," said Dr. Akif Khan, co-author of the Fraud Report and the head of client and technical services for CyberSource Ltd. "There are hopes for promising new anti-fraud developments coming from government, but even with this kind of support the merchants’ principal protection will, for the most part, remain the tools and programmes that they can assemble in their defence."
The losses come despite continued investment by merchants in tackling the fraud problem. The addition of support for the Verified by Visa and MasterCard SecureCode schemes has been the most popular anti-fraud investment in 2008 with 16pc of merchants integrating the programmes. About 60pc of UK merchants now employ these services. The report also showed that many merchants continue to rely heavily on manual reviewers to identify fraud, with 10 per cent reviewing every single order.
"Manual review often forms part of a merchant’s defence against fraud, but as a first line of defence it is both expensive and inefficient," added Dr Khan. "With margins under pressure in today’s challenging economy, merchants should be looking to improve the use of automated fraud screening processes so that they only need to review those orders that are flagged as suspicious. This could have a significant impact on the cost of managing fraud."
About report
A source of information about the state of fraud in the UK’s online industry, the report this year examines data from more than 150 merchants and 1000 consumers. Now in its fifth annual edition, the report was compiled by market researchers NOP and Vanson Bourne. Chief architect of the report is Dr Akif Khan, head of client and technical services for CyberSource Ltd.
