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2007 Online Credit Card Fraud Trends

2007 Online Credit Card Fraud Trends

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Published by Terry Kinder
2007 CyberSource Online Credit Card Fraud Trends Report.
2007 CyberSource Online Credit Card Fraud Trends Report.

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Published by: Terry Kinder on Sep 19, 2007
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Online Payment Fraud Trends,Merchant Practices & Benchmarks
2007 Edition
8
th
AnnualONLINE FRAUD REPORT
 
2
CYBERSOURCE 8
TH
ANNUAL ONLINE FRAUD REPORT
Report & Survey Methodology
This report is based on a survey of 351 online merchants. Decisionmakers who participated in this survey represent a blend of small,medium and large-sized organizations based in North America. Merchantexperience levels range from companies in their first year of onlinetransactions to the largest e-retailers and digital distribution entitiesin the world with many years of experience. Merchants participatingin the 2006 survey reported a total estimate of $53 billion dollarsfor their 2006 online sales. Survey respondents include both non-CyberSource and CyberSource merchants. The survey was conductedvia online questionnaire by Mindwave Research. Three hundred andfifty-one organizations completed the survey between September 14thand October 6th, 2006. All participants were either responsible for orinfluenced decisions regarding risk management in their companies.
Summary of Participants’ Profiles
Online Fraud Survey Wave 2002 2003 2004 2005 2006
Total number of merchants participating 341 333 348 404 351
Annual Online Revenue
Less than $500K 28% 29% 34% 50% 37%$500K to Less than $10M 44% 43% 39% 24% 30%Over $10M 28% 28% 27% 26% 33%
Duration of Online Selling
Less than One Year 12% 10% 12% 14% 11%1-2 Years 28% 19% 14% 19% 11%3-4 Years 45% 44% 30% 23% 18%5 or More Years 15% 27% 44% 45% 61%
Risk Management Responsibility
Ultimately Responsible 32% 49% 50% 60% 54%Influence Decision 68% 51% 50% 40% 46%
Get Tailored Views of Risk Management Pipeline
Metrics
A summary of CyberSource’s full pipeline process analysis is provided in the Appendix of this report. To get a view crafted for yourcompany’s size and industry, please contact CyberSource at 1.888.330.2300 or online atwww.cybersource.com/contact_us.
For additional information, whitepapers and webinars, or sales assistance:Contact CyberSource: 1.888.330.2300 orwww.cybersource.com/contact_usRisk Management Solutions: visitwww.cybersource.com/risksolutionsGlobal Payment & Security Solutions: visitwww.cybersource.com/products_and_services/global_payments
Table of Contents
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CYBERSOURCE 8
TH
ANNUAL ONLINE FRAUD REPORT
3
©2007 CyberSource Corporation. All rights reserved.
Managing online fraud continues to be a significantand growing cost for merchants of all sizes. To betterunderstand the impact of payment fraud for onlinemerchants, CyberSource sponsors annual surveysaddressing the detection, prevention and managementof online fraud. This report summarizes findings fromour eighth annual survey.
Overview
Over the past few years the percent of online revenues lostto payment fraud has been slowly declining; from 1.8% in2004 to 1.4% measured this year. However, total lossesfrom online payment fraud in the U.S. and Canada havesteadily increased during this time as eCommerce hascontinued to grow 20% or more each year.
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In 2006, weestimate that $3.0 billion in online revenues was lost toonline fraud — up from $2.8 billion in 2005.
Key Fraud Metrics
The percent of accepted orders which are later determinedto be fraudulent remained relatively stable. In 2006 thesurvey shows the overall fraudulent order rate was 1.1% vs1.0% in 2005. The share of incoming orders merchantsdeclined to accept due to suspicion of payment fraud wasup slightly. In 2006 the overall order rejection rate was4.1% compared to 3.9% in 2005. If only 20% of theseturned out to be valid, then as much as another $1.6billion may have been lost—most likely to competitors.
Chargebacks Understate Fraud Lossby as Much as 50%
This year’s survey again probed the percent of fraudlosses accounted for by chargebacks versus those incurredas a result of merchants issuing credit in response toa consumer’s claim of fraudulent account use. Overall,merchants continued to report that chargebacks accountedfor less than half of fraud losses.
International Order Risk 2 ½ Times HigherThan Domestic Orders
On average, merchants say the rate of fraud associatedwith international orders is two-and-one-half times as highas domestic orders. Merchants also reject internationalorders at a rate three times higher than domestic orders.These are the same ratios we found in last year’s survey.
Executive Summary
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U.S. Census Bureau Retail E-Commerce Sales reports, Forrester Research.

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