CyberSource: 2008 online fraud to reach $4 billion

The expected $4 billion loss for 2008 is an 11% increase on last year's $3.6 billion, although the percentage of online revenue lost is predicted to remain steady with 2007 at 1.4% of sales.

The consumer electronics category is set to experience the highest fraud rate at 2%, almost double that of the other eight categories covered.

According to the survey, international orders remain highly risky. Online retailers report they were 3.6 times more likely to be fraudulent that domestic orders. In 2006, 2.7% of international orders were fraudulent whilst this year it is forecast at 4%. The fraud rate for U.S. and Canada orders was only 1.1%.

"For years, U.S. eCommerce merchants have fought fraudsters to what amounts to an annual standoff," said Doug Schwegman, CyberSource director of market and customer intelligence. "Losing on average about 1.4 per cent of sales to fraud has been the constant. This year, however, for the first time, merchants could not rely on double-digit market expansion to bolster online revenue growth or to cover inefficiencies. In two key areas -- lower order rejection rate and higher interest in automated tools -- merchants seem to be managing more aggressively in a challenging economy."

One area in which online retailers could do better to recoup losses from fraud is to up the number of chargebacks that are challenged. According to CyberSource, online retailers currently only challenge around 50% of fraudulent chargebacks, with a third challenging less than 10%. Those online retailers that do challenge recover, on average, 28% of those losses.

Tags: cybersource, forecast, fraud, online retailers