E-commerce growth anticipated but misaligned fraud management strategies could jeopardise revenue opportunities
E-commerce growth anticipated but misaligned fraud management strategies could jeopardise revenue opportunities
Despite an overall challenging economy, UK merchants predict positive e-commerce growth in 2011 with only 2% expecting a decline. This is according to the seventh annual UK Online Fraud Report, an independent survey undertaken by CyberSource, a Visa fraud prevention software company.
Despite this projected revenue growth, key fraud metrics have not improved for many survey respondents and in some cases are worsening. On average, 1.9% of 2010 orders accepted later resulted in fraud (compared to 1.6% in 2009), although this figure does vary by market sector. Furthermore, 59% of respondents expect fraud management budgets to remain stagnant in 2011, with 10% expecting to have less available.
Dr Akif Khan, co-author of the fraud report and director of products and services at CyberSource, commented: “Merchants’ 2011 e-commerce growth predictions are certainly encouraging. However, as organisations look to drive more online revenue, it is vital that they address any vulnerabilities to protect themselves from fraud. With the majority of merchants not allocating any additional budget to manage the issue, businesses should focus on designing sustainable strategies that not only reduce fraud losses, but streamline the entire process.”
International expansion challenges exist
Merchants continue to expand into new territories with nearly 60% of UK merchants now accepting online orders from abroad. The US has become an increasingly popular market for UK merchants in recent years – capitalising on a similar language and online buying culture. However, survey respondents have now ranked the US third, behind Nigeria and Ghana, as a likely source of fraud.
“Expanding into new geographies can be very attractive from a revenue perspective,” said Khan. “However, merchants need to exercise due diligence and arm themselves with the right anti-fraud tools. There is no single approach – the merchant’s business model, sector and specific products and services should all play a part in the decision making process.”
When asked to specify the range of order identifiers used to classify a country as ‘high risk’, 59% of merchants use the delivery address and 58%, the internet protocol (IP) address. Although both provide an insight into the purchaser, CyberSource said today’s fraudsters are better able to imitate legitimate transactions, and order characteristics like the IP address can appear valid unless deeper analysis takes place.
Evolving business threats
For the first time in the UK Online Fraud Report, systems uptime has been identified as one of the top two business concerns. Payment data theft this year emerged only as the third greatest business threat. Data security has been a major concern for merchants for many years, particularly given the number of high profile data loss incidents. However, as regulations such as Payment Card Industry Data Security Standards (PCI DSS) evolve, the report concluded that businesses appear to be feeling more confident in the management of data security.
Online fraud remains the number one business threat. When asked why it ranked so highly, 56% of respondents stated that they were spending too much by reviewing too many orders. Second to this is a concern about the overall revenue being lost to fraud (44%).
Manual review proves burdensome
The manual review process continues to represent a critical area of potential profit leakage. On average, merchants are reviewing 20% of incoming orders. However, 71% of reviewed transactions are ultimately approved, representing significant cost and time inefficiencies.
Respondents report that each reviewer analyses an average of 77 orders per day. This is even higher at very large businesses (>£25m annual online revenue); nearly a quarter indicated that each reviewer checks over 120 orders a day. Such merchants were more likely to employ case management systems to streamline the review process; 48% compared to the survey average of 37%.
Despite planned business growth, 75% of merchants expected to make no change to the size of their review teams in 2011. The report urged that attention should therefore centre on optimising workflows of the existing team. By consolidating order information, case management systems can boost the efficiency of the review process; 29% of merchants were expecting to implement such systems during 2011.
Khan concluded: “Merchants have demonstrated confidence in the ability of the online channel to deliver for them in 2011. However there is a risk that expectations may not be met if the appropriate investment is not made. To capitalise on the e-commerce opportunity, businesses should focus on streamlining internal fraud management processes. Improving automated detection and bolstering case management can help reduce the inefficiencies and enable merchants to make more accurate decisions.”
The seventh annual UK Online Fraud Report survey was conducted by research group Vanson Bourne and commissioned by CyberSource. The survey was fielded during September and October 2010 and yielded 200 qualified responses. The sample was drawn from a database of companies involved in e-commerce activities.
