A recent survey revealed that the overall perception of online fraud continues to be a growing concern for both online merchants and consumers. The result, not surprisingly, is a lack of consumer confidence and, therefore, the loss of profits for online businesses. An article, “Online retailers see fraud as a major threat,” summarizes the findings of Cybersource’s 2010 UK Online Fraud Report, and includes some eye-opening statistics about how fraud – and the perception of fraud – directly impacts the shopping habits of online consumers and the fraud policies of Internet businesses.

From the point of view of retailers, the survey found:

• 57% of merchants see online fraud as the greatest threat to their business
• Merchants expect to lose an average of 1.8% of their income to online fraud
• Merchants reject 4.6% of online orders due to suspicion of fraud

When it came to consumer attitudes about fraud, the study found:

• 71% of all consumers had concerns about online fraud
• 50% of people still don’t shop online in the UK (representing a large untapped market)
• 78% said they would never use their mobile phone to make purchases

What some of these findings show is that no matter what level of additional security measures online merchants take to protect their sites and customers, the underlying perception of fraud still takes a toll on profits. This can cause retailers to feel powerless against consumers’ fears about online fraud. However, retailers should focus on what they can control: their ability to accurately detect fraud and the level of confidence they have in deciding whether to accept or reject an order. From this perspective, the statistic that really stands out to me from the survey is the 4.6% of orders that online merchants reject due to the suspicion of fraud.

This is an area where merchants can actually do something about revenue losses. Just because an order is rejected doesn’t necessarily mean it is actually a fraudulent order, it just means the retailer isn’t sure—often the result of insufficient fraud management tools. The problem is that these false positives (good orders rejected on suspicion) can cause businesses to lose significant revenue.

Without the ability to immediately and confidently determine if a transaction is good or bad, online businesses will continue to turn down good orders. One of the strongest ways to help reduce false positives is to implement a solution that helps identify the device the person is using rather than relying solely on tools that only analyze the information provided by the user. Along with accepting more good business, online merchants can reduce the number of reviews and other inefficiencies that are inherent in risk management systems.

Tags: Online Fraud

This entry was posted on Friday, February 19th, 2010 at 8:59 am and is filed under Online Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.