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Online Shopping Season a Target For Fraud

Mondays are the busiest day to shop online during the holidays, according to research from Atlas DMT.

But according to CyberSource, it doesn't matter to fraudsters which day of the week it is. The firm says U.S. ecommerce will lose $2.6 billion to online fraud this year.

In its "2004 Online Holiday Shopping Patterns Revealed," Atlas DMT reported that Monday is the busiest online shopping day during the holiday season, adding that during the rest of the year, it's the day to comparison shop.

"Holiday shopping online isn't a novelty anymore. During this critical season, consumers are shopping in stores on the weekends and then continuing that shopping experience online during the workweek," said Young-Bean Song, Atlas director of analytics, in a statement.

But along with e-commerce comes the potential for fraud, and according to electronic payment vendor CyberSource, fraud losses are expected to increase more than 37 percent over 2003 to a total of $2.6 billion.

The firm expects fraud loss to account for 1.8 of online sales, which is just 0.1 percent more than last year. But, on average only 1.3 percent of all orders accepted by online retailers were fraudulent. In 2003 that number was 1.4 percent.

"The simple fraud rate is going down, especially for larger, more sophisticated merchants," said Doug Schwegman, CyberSource director of market intelligence. "We noted the beginning of this trend in 2001 and it has continued. So on one front, merchants can claim a real success."

The fear of fraud has led online retailers to reject 28 percent more orders on suspicion of fraud than last year. The rejection rate in 2004, according to CyberSource, is nearly 6 percent, which could represent a significant revenue loss for retailers.

Fraud and order rejection rates however are significantly higher for transactions outside of the United States and Canada. Thirteen percent of international orders are rejected on suspicion of fraud, and 3.8 percent of transactions are actually fraudulent.

Fraudsters seem to be going for the higher value merchandise, as well. While the median dollar value of a legitimate purchase was $100 the fraudster 'spend' was 50 percent more for an average of $150.

Online retailers are now making use of fraud prevention tools at an all-time high rate. Address Verification Service is used by 82 percent of merchants, and Card Verification number checking is done by 56 percent of merchants.