December 16, 2004

CyberSource's newest online fraud study finds that more e-retailers are using fraud detection tools and rejecting a higher number of online orders, especially if they originate in Nigeria.

CyberSource's study reveals that the percentage of orders rejected due to suspicion of fraud is not insignificant, varying from 4.6% for companies with online revenues of less than $500,000 to 7.9% for companies with revenues between $500,000 and $5 million.

There appears to be no correlation between the size of companies and how many orders they reject because of fraud suspicions.

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The percentage of online orders rejected rises quite a bit for those originating outside North America. While 5.9% of all online orders in 2004 have been rejected on fraud suspicions, 13.5% of orders from outside the US and North America were rejected. Both rates were slightly higher in 2003 than 2004.

Nigeria leads the list of countries outside North America that merchants feel pose the highest online fraud risk. This isn't surprising, considering Nigeria already has the reputation as being a center of e-mail money scams, antecedents of the widespread bank phishing scams of today.

Following Nigeria, though with considerably lower rates of risk, are Indonesia, Russia, China and Afghanistan. In North America, New York is deemed the highest risk city by 26% of merchants surveyed, followed by Miami with 10%, Los Angeles with 9%, Chicago and Detroit at 3%, and the San Francisco bay area with 2%.

As CyberSource notes, the higher rates in these cities may be a result of "trans-shipping," in which scammers in other countries use US addresses to send out fraudulent e-mails. Doug Schwegman, CyberSource Director of Market Intelligence, notes that "fraudsters located in Nigeria, Indonesia or some parts of Eastern Europe now know their orders are going to be denied.

There is just too much history of fraud from those parts of the world. So they order to a domestic address where someone will accept the package and forward it to the real location abroad."

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To fight fraud, companies favor a variety of methods, including address verification, card verification number (usually a three-digit number on the back of the actual credit card), custom fraud screens, checking customer history and negative files (a "black list" of credit card numbers the merchant will not accept).

CyberSource finds that use of all anti-fraud methods are up for 2004 compared 2003 (among those methods tracked both years).

A recent report from the Merchant Risk Council (MRC) finds similar usage of fraud prevention tools.

Source: Server Pipeline.com

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