Online Fraud Growing in Scale, Sophistication

Fraud will cost online retailers about $500 million during this holiday season, according to a new study out by industry analyst giant Gartner, Inc.

Suspect transactions and credit card fraud will nail the e-commerce industry, according to Gartner’s recent survey of 50 leading e-commerce outlets. The analyst firm also predicts that U.S. online sales will ring up to $15.66 billion in the fourth quarter of 2002.

The report also notes that missed sales opportunities cost online merchants two times more than losses from completed but fraudulent transactions. Credit card fraud causes e-tailers to lose about 1% of their transaction volume and sales revenue, while e-tailers reject 6% of consumer purchase requests because they appear suspicious. Gartner analysts note that 6% of sales equals $950 million in revenue for the fourth quarter alone.

The e-commerce leaders surveyed admitted that they mistakenly reject about 2% of total sales, costing them $315 million in sales.

Fraud alone will cost online merchants $160 million in the fourth quarter.

Fraud is growing not only in scale but in sophistication.

The Gartner report points out that fraud has become more frequent, menacing and sophisticated. Despite increased efforts to allay the problem, 7% online shoppers reported being the victim of credit card fraud in the preceding 12 months, according to a Gartner survey of 1,000 adult online consumers. That represents a jump of two percentage points from 2001.

On the brighter side, Gartner predicts that online holiday sales will increase 32% over last year. However, fraud attacks are increasing at a similar rate.