Online Fraud Mounts

Merchant beware: E-thieves are out there.

JANUARY 25, 2007 – Fraud is still a problem for online retailers. But even though actual losses are rising, the rate of those losses is flattening out.

In other words, the threat actually may be lessening � somewhat.

According to the “8th Annual Online Fraud Report,” released by CyberSource, losses from online fraud in the US and Canada in 2006 totaled $3 billion, a 7% increase over 2005.

But the percentage of revenues lost to fraud improved slightly � dropping to 1.4% in 2006, down from 1.6% the year before.

This is the third consecutive year to show a decline in the percentage rate of revenue loss, but because e-commerce sales continue to grow at more than 20% a year, the overall dollar-loss amount showed a rise.

With only 1% of accepted orders ultimately turning out to be fraudulent, merchants are erring on the side of caution by rejecting roughly 4% of their incoming orders due to suspicion of fraud. That means about 3% of total e-commerce revenues may be lost each year as valid orders are turned down.

For US and Canadian online merchants, overseas orders present the most risk.

While 61% of online merchants accept orders from outside the US and Canada, and those orders represent 17% of their total order volume, respondents reported that in 2006 2.7% of those orders were fraudulent, a rate 2.5 times higher than the rate associated with US and Canadian orders.

Not surprisingly, merchants report that they reject 12.7% of international orders, a rate three times higher than orders originating in the US or Canada.

For more information on Canadian online sales, read eMarketer’s Canada B2C E-Commerce report.

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