CYBS Cybersource (MM)

Record fraud losses for U.S. eCommerce; 10th annual CyberSource survey shows merchants shift priorities in down economy MOUNTAIN VIEW, Calif., Dec. 10 /PRNewswire-FirstCall/ -- Results of the tenth annual CyberSource Corporation (NASDAQ:CYBS) survey of eCommerce fraud, released today, show merchants expect to lose a record $4 billion to online fraud in 2008. Merchants say the fraud loss rate will hold constant at 1.4% of revenue (same as 2007 and 2006), but continuing growth in eCommerce sales mean dollar losses to fraud are still growing. Merchants are shifting some fraud fighting priorities, perhaps as an adjustment to a slowing economy. (Logo: http://www.newscom.com/cgi-bin/prnh/19990513/CYBRSOURCELOGO) "For years, U.S. eCommerce merchants have fought fraudsters to what amounts to an annual standoff," said Doug Schwegman, CyberSource director of market and customer intelligence. "Losing on average about 1.4 percent of sales to fraud has been the constant. This year, however, for the first time, merchants could not rely on double-digit market expansion to bolster online revenue growth or to cover inefficiencies. In two key areas -- lower order rejection rate and higher interest in automated tools -- merchants seem to be managing more aggressively in a challenging economy." Order rejection rates due to suspicion of fraud, which have been consistent for several years at around 4% of incoming orders, showed a significant drop in 2008, falling from last year's 4.2% to 2.9%. Put more simply, merchants are accepting a higher percentage of the orders they receive. This trend was seen across all types and sizes of merchant. Falling rejection rates coupled with steady fraud rates imply that merchants are more successful this year than in previous years at fighting fraud. On automated fraud detection tools, evidence of increasing interest is equally compelling. This year's survey asked merchants about their plans to implement 14 tools that had also been studied in 2007. In every case the intent to implement increased -- in some cases by as much as two to three times. These fraud detection tools can provide an automated assessment of the fraud potential of a transaction and can reduce reliance on human involvement. Eighty-seven percent of merchants do not expect to add review staff in 2009, representing the most conservative staffing posture we have seen in the survey. Fraud rates plateau For the third consecutive year, eCommerce merchants said on average they will lose 1.4% of their online revenues to fraud. Their fraud rate on accepted orders averaged 1.1% in the US and Canada. The survey tracks results by type of merchant, with the consumer electronics category showing the highest fraud rate for the year among eight industry segments measured -- 2% of accepted orders, nearly double the average. Once again merchants reported that only about half of their fraud is reported via chargeback (bank card holders disputing a charge with the issuing bank), with the remainder coming directly through their customer support functions. Constant review rates = higher manual review costs Over the past five years, the survey has shown that merchants that manually review orders for fraud examine an average of one out of every three orders they receive. So there continues to be heavy human involvement in what one might expect to be an automated process. Since these are relatively constant percentages of an increasing number of orders, the burden of expensive manual review continues to grow. Mid-size merchants most challenged While overall averages have remained relatively flat, a consistent trend in the market has emerged. Merchants with online revenues of $5 million to $25 million are most challenged by online fraud. When compared with larger merchants (online sales of $25M+), the mid-sized eCommerce merchants show higher order rejection rates (4.3% versus 2.4%), higher manual review rates (34% of orders, versus 15%) and higher fraud loss rates (1.6% of revenue versus 1.2%). According to Schwegman, "We believe the largest merchants are simply better at fighting fraud -- they make better use of fraud detection tools and other resources. And, as they work through the growing pains of becoming a large merchant, mid-sized merchants' fraud metrics may actually spike if they haven't implemented the tools and established the review expertise to sufficiently protect them from the increase in the volume of fraudulent activity." Merchants still looking at too many good orders To optimize use of expensive manual review operations, merchants need to minimize the amount of time spent examining good orders, but the survey results show little progress in this area. Merchants this year said they ultimately accepted 73% of orders they manually reviewed, roughly the same as last year. Approximately half of the merchants accepted 90% or more of orders they reviewed. This demonstrates a continuing challenge in the precision of "outsorting" of bad orders. According to Schwegman: "If you're a merchant and you're accepting this level of reviewed orders, there is real opportunity for you to reduce costs and add profit -- simply through better initial automated order screening." Profit opportunities missed Fraud chargebacks can represent a profit potential for merchants. Data from this year's survey shows that merchants currently fight only about 50% of the fraud chargebacks they receive. A third of merchants challenge less than 10%. But merchants that do elect to challenge chargebacks recover, on average, 28% of their fraud chargebacks. For many merchants, this remains an untapped opportunity. International order risk remains high This year, 52% of merchants say they accept orders from beyond the borders of U.S. and Canada, and those merchants say international orders constitute an average of 17% of their total orders in 2008. This growing market opportunity does bring more than its share of risk, however. Merchants say fraud on international orders was 3.6 times higher than fraud on domestic orders. Since 2006, fraud on international orders has grown from 2.7% to the current 4%. To obtain a copy of the survey results -- for journalists: please call or email Bruce Frymire (650-965-6042, ). For all others: please visit http://www.cybersource.com/fraudreport/ The tenth annual CyberSource fraud survey was commissioned by CyberSource Corporation. The survey was fielded October 21st through November 11th, 2008 and yielded 400 qualified and complete responses. The sample was drawn from a database of companies involved in electronic commerce activities. Incentive to respondents included a summary of the research. About CyberSource CyberSource Corporation is a leading provider of electronic payment and risk management solutions. CyberSource solutions enable electronic payment processing for Web, call center, and POS environments. CyberSource also offers industry leading risk management solutions for merchants accepting card-not-present transactions. CyberSource Professional Services designs, integrates, and optimizes commerce transaction processing systems. Approximately 245,000 businesses use CyberSource solutions, including half the companies comprising the Dow Jones Industrial Average. The company is headquartered in Mountain View, California, and has sales and service offices in Japan, the United Kingdom, and other locations in the United States including Bellevue, Washington and American Fork, Utah. For more information on CyberSource please visit http://www.cybersource.com/ or email . For more information on Authorize.Net small business solutions, please visit http://www.authorize.net/ or email . (C)2008 CyberSource Corporation. All rights reserved. CyberSource is a registered trademark in the U.S. and other countries. All other brands and product names are trademarks or registered trademarks of their respective companies. (1) Dollar losses are estimated by applying the survey data on anticipated % revenue lost to an estimate of 2008 U.S. eCommerce revenues of $285 billion. This $285 billion estimate was derived by multiplying Forrester Research's 2007 estimate of eCommerce revenues (published January 2008) by a growth rate of 9.2%. The 9.2% growth rate for total U.S. eCommerce is from eMarketer's December 2008 forecast. http://www.newscom.com/cgi-bin/prnh/19990513/CYBRSOURCELOGO http://photoarchive.ap.org/ DATASOURCE: CyberSource Corporation CONTACT: Bruce Frymire of CyberSource Corporation, +1-650-965-6042, Web site: http://www.cybersource.com/

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