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Online Fraudsters Take $1.6B Out of 2003 eCommerce Merchants Making Progress Controlling Direct Fraud Costs - Hidden Costs Now Looming Larger MOUNTAIN VIEW, Calif., Nov. 18 /PRNewswire-FirstCall/ -- The Fifth Annual survey of eCommerce fraud released today by CyberSource Corporation shows merchants are making some gains in limiting the online fraud rate. 333 merchants surveyed said they expect to lose about 1.7% of their revenue to fraud this year, down from 2.9% the year before. (1.7% of estimated U.S. business-to-consumer eCommerce revenues in 2003 amounts to over $1.6 billion*). But progress against the direct fraud rate may be more than offset by the indirect, hidden costs of fraud. More merchants are checking more orders manually, yielding higher personnel expenses. And many orders are being rejected on suspicion of fraud -- inevitably meaning some good orders never turn into revenue. (Photo: http://www.newscom.com/cgi-bin/prnh/19990513/CYBRSOURCELOGO ) The growing cost of fraud prevention Clearly, merchants feel the overall problem is significantly worse this year. 66% of those responding called fraud a "serious" or "very serious" problem compared to only 46% who felt that way in 2002. The explanation? It's costing a lot to get the fraud rate down. Last year, only half the merchants surveyed used manual review; this year the figure is two-thirds. Nearly one in four orders is being manually checked this year (23%) up from one in five (20%) in 2002. Yet two-thirds of these orders are ultimately accepted and shipped. Adding to the true cost of fraud are rejected orders. For every order that ultimately turns out to be invalid, merchants are having to reject another three to four on the suspicion they may be fraudulent. A percentage of those rejected orders may be good, meaning more revenue that never gets realized. "With e-commerce continuing to grow rapidly, online fraud is casting a long shadow over the business in terms of both lost sales and overhead," said Perry Dembner, CyberSource vice president, marketing. "Merchants are realizing that throwing people at the problem is not a long term solution. We are seeing that the best merchants are working the whole problem, using automated tools to help find more good orders more quickly. That will separate the winners and losers in this arena." New card association regulations make the fraud rate an even more crucial management issue for merchants today. Sellers who have to accept charged back sales at a rate greater than 1% of orders may be subject to significant fees and penalties. According to this year's survey, almost 60% of online merchants report a total order loss rate of 1% or more, a portion of which are actual chargebacks. International eCommerce-higher growth potential at a higher cost Market analysts predict that eCommerce is growing faster in Europe and Asia than in the U.S. and Canada. But CyberSource's survey data shows merchants need caution as they extend their operations abroad. Survey respondents who accept international orders say the direct fraud rate they experience there is four times the rate they see in orders from the U.S. and Canada, despite the fact that they are also rejecting orders at a four times greater rate Use of anti-fraud tools growing Manual review is just one example of anti-fraud tools seeing greater use today. Address Verification Service (a basic tool from the card companies that authenticates the first five digits of the cardholder's address and the cardholder's zip code) is employed by 75% of merchants today (up from 71% in 2002). 44% of respondents (vs. 34% last year) say they use the various Card Verification Number (CVN) schemes available from the card companies, requiring card holders to supply the three or four digits that appear on the front or the back of their cards during the transaction. Cardholder authentication programs by MasterCard (SecureCode) and Visa (Verified by Visa) also show growth this year, with over 40% having implemented or planning to implement these tactics within a year. To obtain a copy of the survey results -- for journalists: call or email Bruce Frymire (650-965-6042, ). For all others: please visit http://www.cybersource.com/fraudreport/ The Fifth Annual CyberSource Fraud Survey was sponsored by CyberSource Corporation and undertaken by Mindwave Research. The survey was fielded October 10-14, 2003 and yielded 333 complete responses (vs. 341 the year before). The sample was drawn from a database of companies involved in electronic commerce activities. Incentive to respondents was a summary of the research findings. 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/IVR, and POS environments and manage transaction risk associated with card-not-present transactions. CyberSource Professional Services designs, integrates, and optimizes enterprise-wide commerce transaction systems. Over 3,000 businesses use CyberSource solutions, including over half of the Dow Jones Industrial companies. 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. For more information, please visit CyberSource's web site at http://www.cybersource.com/ or email . NOTE: 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. * Forrester Research, August, 2003. http://www.newscom.com/cgi-bin/prnh/19990513/CYBRSOURCELOGO http://photoarchive.ap.org/ DATASOURCE: CyberSource Corporation CONTACT: Bruce Frymire of CyberSource Corp., +1-650-965-6042, or Web site: http://www.cybersource.com/

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