Fraud Could Rain On Holiday Parade

    December 20, 2006
    WebProNews Staff

Online retailers may seen payment fraud siphon $3 billion away from their enterprises for all of 2006, and there is impact beyond the Internet.

Despite the hefty ten-digit sum being withdrawn from the pockets of seething retailers for the year, the figure represents a downward trend in the total percentage of sales ending up as a chargeback due to fraudulent activity.

Analyst firm eMarketer cited findings by Cyber Source, an automated transaction solution company, in indicating the dropoff, percentage-wise, in fraud losses:

The percent of revenues lost to fraud improved slightly to 1.4%, in 2006, down from 1.6% the year before. This is the third consecutive year to show a decline in the percentage rate of revenue loss, but because eCommerce sales continue to grow 20+% each year, dollar losses to U.S. eCommerce continue to mount.

With greater success in sales for online retailers, especially through the holiday season, fraud and its attendant activities like identity theft and spamming people with malware becomes that much more profitable. The $3 billion lost in 2006 represents a 7 percent increase over 2005.

Online retail spending, excluding travel, auctions, and large corporate purchases, has been running at a 24 percent higher clip than in 2005. According to analysis firm Hitwise, spending exceeded $17.5 billion from November 1 through December 12.

During that run, online retailers collectively saw five consecutive days where spending topped $610 million for each day. That’s a lot of George Foreman Grills and other items moving through the Internet marketplace.


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David Utter is a staff writer for WebProNews covering technology and business.