Card fraud drops as defense costs rise - criminals walk with $3.1 billion

by Steve Ragan - Jan 25 2012, 08:01

According to a subsidiary of Visa, CyberSource, the amount of fraudulent orders online dropped to a 13-year low in 2011, but the cost of combating it is still on the rise. On top of this, successful criminals are taking more per-transaction, to the tune of $3.1 billion dollars.

The fraud rate by order dropped 33 percent, from 0.9 percent in 2011 to 0.6 percent. On average, merchants say 1 percent of online revenues were lost to fraud in 2011, a slight increase over last year's 0.9 percent. That translates to an estimated 2011 merchant dollar loss of approximately $3.4 billion, CyberSource reported.

The figures were taken from their annual eCommerce fraud survey, which examined the costs merchants face as they do business online, from major outlets to small mom-and-pop operations.

According to the report, this is the first time merchants have cited an increase in the fraud rate by revenue since 2004. The lower fraud rate by order, accompanied by higher estimated revenue loss, means fraudsters are stealing more expensive items ($250 on average vs. $150 on average for a valid order).

The mostly flat estimates of fraud rate by revenue demonstrate merchant success in fighting fraud, but at a cost – they are using more tools and systems, and reviewing more orders. Manual review is an effective, but expensive strategy, CyberSource said, accounting for nearly 52-percent of a merchant’s fraud budgets. However, manual screenings require people, which can tax overall budgets including human resources and operations.

International orders posed the most risk, respondents said, with an average of 7.3-percent of them being rejected last year.

“This prudence is warranted – the international fraud rate by order was 2.0 percent, over 3 times higher than the fraud rate by order for North American orders (0.6 percent). One quarter of respondents said their company had stopped accepting international orders altogether due to the fraud risk—50 percent of that group specifically citing Nigeria as a high risk area,” the report said.

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