What is online fraud?

Most of us think of online fraud to be all about stolen credit cards ordering thousands of dollars of goods from far away countries. The reality is that online fraud is much closer to home, can be any purchase value with any purchase method. Online fraud is carried out by people (not credit cards!) and much of it originates from legitimate but dishonest buyers. Reducing online fraud means retailers need to do more than use a reputable payment gateway and just follow normal security practices.

of all payment fraud occurs online

of all online purchases are fraudulent

The cost of online fraud to Australian Businesses

increase in online fraud from 2010 - 2013

The global average rate of online fraudulent transactions is 1%*. With Australasia’s annual online purchases nearing $20B, fraud risk is a significant issue, and equates to $200m a year to retailers purely in financial costs of lost payments or lost deliveries. Worse, there are more risks to retailers in brand damage and perceptions from both customers and media, along with the operational costs for follow-up and recovery.

* US figures, but we observe virtually identical numbers in Australasia.
Online fraud isn’t friendly and isn’t going away. The good news is retailers can take steps to mitigate the risks and save millions of dollars and in many instances, their reputations as well. Andrew Buxton - CEO, eStar

Online fraud can take a number of forms. By far the most common form is the so called “friendly fraud” where a buyer contacts their credit card company to dispute they didn’t receive the goods, never ordered them, or there was a problem with the product.

These deliberate scenarios are responsible for over 60% of all claims. Accidental friendly fraud can also occur where the customer doesn’t realise what a charge is for on an account. Buyer identity fraud from lost and stolen credit cards is much less common.

The result of most online fraud for a retailer is a chargeback – where the merchant has not only lost the goods but also has the value of the transaction reversed by their settling bank. The risk of chargebacks is exacerbated in the online ‘card not present’ environment, where both illicit and ‘friendly’ fraudsters benefit from the ability to transact relatively anonymously. Enough chargebacks can cause an even bigger risk – that of the retailers entire merchant account being revoked by their bank, meaning they can no longer accept online transactions.

Find out how RMProfiler can help your business reduce fraud.

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