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Ecommerce Security Keeps Fraud Under 3%


Online transaction fraud does occur, but it is actually only a problem for a small minority of one in six businesses. These typically serve high-risk customers (teens and young adults, low-income populations) with products that are highly attractive and resalable (electronics, leather jackets, jewelry) in after-markets. Identity theft is a common exposure for online vendors who are unable to fully qualify buyers in cyberspace.

At the same time, real-time approvals of card sales serve to reduce the level of losses to fraud.

Loss rates online are typically not very different from loss rates offline in most categories.

Fourteen percent (14%) of today's e-commerce sites experience some online fraud, although most of these claim that it "occurs, but has minimal impact on business." The vast majority of online businesses find that one in five of these sites (3% of all sites) deal with fraudulent online transactions on an ongoing basis.

One percent (1%) of all sites find that fraud is a substantial problem in their business.

Online fraud that does draw concern typically involves only 1% of online transactions. However, a few of the "Relationship" Sites (7%) and Ad-oriented Sites (6%) experience percentages of online transaction frauds spiking into the 6% and higher range.

Higher levels of fraud, averaging 2.5% at Complex "Relationship" and Ad-oriented Sites, reflect the small proportion of online businesses engaged in sub-rosa activities like pornography and gambling, as well as person-to-person auctions, classified ads, and similar market-making activities where anonymity encourages predatory behavior.

For sites where the risks of fraud are borne by consumers rather than the parent company (e.g., classified ads, online auctions) or where risks of product loss are minimal (pornography), a loss prevention strategy can be financially rewarding, while efforts to limit risk also limits sales. In response, credit-card acquiring banks, which incur costs in handling risk fees, have recently begun to aggressively punish repeat offenders with more than a marginal level of fraudulent sales by charging penalty fees and closing accounts quickly. This adds impetus to the need to find website design methods that can control fraud loss.

Lower fraud exposure levels of around 1% at Transactional Sites oriented toward direct product sales suggest that fraud is both preventable and manageable in a typical retail setting.




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