Whitepaper: Online Fraud - Perceptions from the E-business Frontier

The following is an executive summary and key findings from the survey, Online Fraud - Perceptions from the E-business Frontier, conducted by MindWave Research, Inc. for CyberSource, Corp. of San Jose, Calif., a leading vendor of online fraud prevention tools.

Executive Summary

This study provides an overview of key perceptions about the critical issue of online fraud from those who are on the frontline.

The respondents range from those who are in their first year of online transactions, to those who are among the largest e-retailers in the world. The base was mixed between small, midsize and large businesses. Number of online transactions ranged from less than 100 to more than 10,000 per company. A mix of senior management, business management/staff and information technology job functions were included in the study.

Major Findings

*Seventy-five percent consider online fraud a problem for merchants.
* On average, respondents estimate that approximately 5 percent of total transactions over their system are fraudulent. This figure ranged from 0 percent to more than 25 percent.
* The most common kind of fraud according to the respondents is stolen credit cards (28 percent), identity theft (20 percent) and card generators (10 percent). 36 percent did not know what kind was most prevalent. Seven percent reported "other."
* Lack of confidence by consumers is the number one concern, followed by stolen cards, unauthorized access to customer information, hacking and chargeback fees. Respondents also expressed frustration at the lack of adequate controls from credit card companies and the government. Fear of the negative impact fraud can have on online brand image was also mentioned as a strong concern.
* Seventy-two percent believe that sales would increase if online shoppers were not as concerned about fraud.
* Thirty-two percent are concerned about substantial negative impact on their business from loss of staff time, 34 percent from chargebacks, 26 percent from loss of revenue and loss of goods and 12 percent from bank fees.
* With the lucrative holiday season right around the corner, online fraud has a special significance, with 74 percent believing that fraud will increase this year. 52 percent expect revenue to increase over last year and the average increase anticipated is 68 percent.
* 41 percent of online merchants did not know that they are held responsible when fraud occurs. Given the widespread concern about fraud and its impact on e-business in general, there clearly exists a need for more education and information.

Other findings from "Online Fraud--Perceptions From the E-business Frontier."

Scope of online fraud issue
--75 percent consider fraud a problem for merchants.
--62 percent consider fraud a serious problem
On average, respondents estimated that 5 percent of their total online transactions are fraudulent.

Most common kind of fraud
--28 percent stolen credit cards
- 20 percent Identity Theft
- 10 percent Card generators
- 35 percent Don't know
- 7 percent Other

Key Impacts on Business (percent reporting "substantial" negative impact from each factor)
- 12 percent Bank fees
- 26 percent Loss of revenue
- 26 percent Loss of goods
- 32 percent Loss of staff time
- 34 percent Chargebacks

Key inhibitors about credit card screening of those respondents not currently using a solution (percent extremely or very concerned about)
- 45 percent Lack of support from credit card associations
- 45 percent Resources needed to maintain the solution
- 48 percent Inability to accurately deter fraud
- 78 percent Rejecting valid orders

Impact of fraud on online shopping demand
- 72 percent believe that sales would increase if online shoppers were not concerned about fraud
- 24 percent believe that sales would go up significantly

Holiday Outlook
- 37 percent Company's first online holiday season
- 52 percent Expecting an increase in online revenue over last season
- 68 percent Average percent increase expected
- 74 percent Believe that fraud will increase this holiday season
- 52 percent anticipate more than 2,000 online orders in December 1999

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