As the growth rate of online sales has slowed during 2008 and 2009, it appears mer- chants are now focusing even more attention on sales conversion and reducing their fraud-related, order-rejection rates. The survey results indicate most merchants have successfully increased their order acceptance rate with little or no increase in fraud rates. It remains to be seen if online merchants can continue to control fraud rates while increasing order acceptance in 2010.
Chargebacks Understate Fraud Loss by as much as 50% Overall, merchants continue to report that chargebacks accounted for less than half of fraud losses. The remainder occurred when merchants issued credit to reverse a charge in response to a consumer’s claim of fraudulent account use.
International Order Risk 3½ Times Higher than Domestic Orders On average, merchants say orders from outside Canada are twice as likely to be fraudu- lent than domestic orders. While that may seem huge, it represents a considerable improvement over the year before where fraud rates associated with international orders were three-and-one-half times their domestic counterparts. To mitigate losses, merchants reject international orders at a rate three times higher than domestic orders.
Manual Review Rates Over the past five years, the overall percent of online orders that enter manual fraud review has fluctuated between 20% and 27%; about 1 out of 4, on average. In some segments, fraud risk is low enough for merchants to rely entirely on automated review, which lowers the aggregate review ratio. But most merchants do manually review orders for fraud risk. Over the past five years, these merchants review, on average, 1 out of every 3 orders.
Over the past five years, merchants who engage in manual order review have main- tained this average review rate. Large online merchants, who typically employ more automation, continue to have much lower manual review rates. Over the past three years, large merchants ($25M+ in online sales) performing manual order review have, on average, reviewed approximately 15% of orders. Looking back over the past several years of survey data, we conclude that most merchants have made little progress in reducing their reliance on manual review and are likely reviewing far more orders today than they were just a few years ago.
Efficiency Gains Required As e-commerce sales continue to grow and budgets and resources remain relatively fixed, merchants face the challenge of screening more online orders while keeping order rejection and fraud rates as low as possible to maximize sales and profits. Contin- ued reliance on manual review presents a serious challenge to scalability. Can mer- chants grow their review staffing sufficiently to keep pace with fraud? Similar to 2008, in 2009 only 13% of online merchants expect to increase manual review staff in the coming year and 9% anticipate decreasing staff levels. These are the lowest levels of planned staff increases we have seen in the 11-year history of the survey. At the same time, merchants report that improving their automated detection and sorting capability is a key area of focus for 2010.
Visa e-commerce cross-border handbook for U.S. retailers
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