Estimated $3.5 Billion Lost to Online Fraud, Automated Screening Recommended

An estimated $3.5 billion was lost to online fraud (chargebacks and issued credits) in 2012, according to a new study released by online payment

An estimated $3.5 billion was lost to online fraud (chargebacks and issued credits) in 2012, according to a new study released by online payment processor Cybersource. And even though the average fraud-by-revenue rate dropped .01% from 1% to 0.9%, the fraud-by-order rate increased from 0.6% to 0.8%. Moreover, international sales had a fraud twice as high at 1.6%.The average fraudulent charge was $200, averaged over both digital goods and services and physical products and merchandise. For the digital goods and services industry in particular, the fraud rate by revenue was also 0.9%, while the fraud rate by order was 1.0%, higher than the overall average.Companies mainly sought to minimize chargebacks and fraud by manually reviewing claims, but this technique is not the most optimal. Of the orders manually reviewed, 75% were eventually approved, but the 4% of those reviewed orders were found to be fraudulent after review.Therefore, it’s best if online companies seek a mix of manual and automated review for fraudulent claims. Some of the most popular automated screening methods that companies developed in-house included:

  • A company-specific fraud screening model
  • Analyzing customer order history
  • Monitoring order velocity
  • Using in-house negative/black lists to reject orders
  • Monitoring customer website behavior
  • Using positive lists

Also, overall, 43% of fraudulent claims took the form of chargebacks. The other 57% of fraudulent claims were determined by credits issued by a merchant — a best practice over chargeback, which can hurt a merchant’s overall standing with a payment processor. (To learn more about the payment processing system and minimizing chargebacks, see the Insider resources below.)

Up Next

Register Now For Email Subscription News Updates!

Search this site

You May Be Interested in: