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.)
