The threat of online fraud continues to grow, with nearly half of companies operating online expecting the problem to get worse this year.
On average 1.3 per cent of completed orders are fraudulent, according to a survey of 348 US online merchants. As fraudulent orders tend to be higher value, the total revenue lost through fraud is calculated at 1.8 per cent.
The report said companies selling online can boost profitability by cutting the number of legitimate orders wrongly rejected as fraudulent, reducing the cost of manual reviewing orders, and cracking down on the number of phoney orders accepted.
Sponsored by electronic payments company CyberSource, the report said: "Fraud is seemingly not just more pervasive, but fraudsters are more sophisticated. As a result, merchants are employing more tools, and rejecting and manually reviewing more orders. All of this comes at considerable cost."
Online e-tailers rejected 5.9 per cent of orders on suspicion of fraud (up a quarter on 2003) and manually reviewed 27 per cent of orders (up from 23 per cent in 2003). But they risk turning away legitimate business.
"Focusing on lowering reject rates may have as much impact on bottom-line profits as pursuing ways to further reduce direct fraud loss," the report warned.
Eddie Pacey, director of credit services at distributor Bell Microproducts Europe, said: "It is going to get worse. Unless you have pretty robust back-office systems, you will have a real problem."
He added that the police are likely to be interested in investigating fraud only if it is on a large scale. "If it's a low figure such as £4,000 to £5,000, forget it. They expect you to have checks in place to stop it. The resource isn't there to tackle this kind of fraud."
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