E-Commerce Fraud Highest in New York City, Miami and Los Angeles

In a recently released fraud survey by CyberSource to determine where online orders were most likely made with stolen credit cards or other fraudulent payment, New York City topped the list with 18% of the respondents. Other locations requiring extra care in doing ecommerce business were reported as:

Miami: 7%
Los Angeles: 7%
Chicago: 2%
Detroit: 2%
Nigeria: 31%
China: 7%
Indonesia: 5%
Afghanistan, Mexico, Russia, U.K, Vietnam: 4% (each
Doug Schwegman, CyberSource director of market intelligence, said "... among U.S. and Canadian cities, New York still holds the dubious distinction of being number one for eCommerce fraud. But it's worth noting that survey respondents were spreading the blame far more evenly in the most recent findings."

Schwegman continued, "In 2004, 26% cited New York as the most likely venue for fraudulent eCommerce, but that dropped to 18% in 2005. Overall the top five cities gathered 36% of "riskiest" responses, down from 51% in 2004. This may reflect merchants more carefully scrutinizing higher risk orders, (or) it may simultaneously reflect fraudsters more aggressively spreading and cloaking their efforts."

During 2005, 65% of merchants reported using 3 or more detection tools. Merchants with annual eCommerce sales greater than $25 million reported an average of 7 fraud-finding tools in use. 75% of merchants overall use Address Verification Service (AVS) and 66% of merchants overall used Card Verification Number (CVN), with 10% more saying they plan to add it in the future.

The next 4 most used tools listed were, in order of mention:

Address Point Verification (32%)
Visa and MasterCard Secure Code (29%)
Company specific scoring systems (28%)
Negative lists (27%)

For the second time in as many years, eCommerce merchants named New York City as the riskiest North American metro area for eCommerce. The finding came as part of the annual online fraud survey undertaken by CyberSource Corporation (NASDAQ: CYBS). Nigeria was chosen as riskiest country, also for the second straight year. By "riskiest," survey respondents are indicating that orders from these areas are most likely to be fraudulent (i.e., made with stolen credit cards or other fraudulent payment).

"Highest risk" areas for eCommerce:
U.S. cities
NYC: 18% of mentions
Miami: 7% Los Angeles: 7% Chicago, Detroit: 2% (each)
Countries
Nigeria: 31% of mentions
China: 7%
Indonesia: 5%
Afghanistan, Mexico, Russia, U.K, Vietnam: 4% (each)

"It's true that among U.S. and Canadian cities, New York still holds the dubious distinction of being number one for eCommerce fraud," says Doug Schwegman, CyberSource director of market intelligence. "But it's worth noting that survey respondents were spreading the blame far more evenly in the most recent findings. In 2004, 26% cited New York as the most likely venue for fraudulent eCommerce, but that dropped to 18% in 2005. Overall the top five cities gathered 36% of "riskiest" responses, down from 51% in 2004. This may reflect merchants more carefully scrutinizing higher risk orders. Unfortunately, it may simultaneously reflect fraudsters more aggressively spreading and cloaking their efforts."

In keeping with China's growing prominence in the world market, that country rose from fourth to second place among risky countries cited. International eCommerce remains an area of special challenge and focus for fraud protection. Merchants that accept international orders say they decline 12.4% of them on suspicion of fraud, over three times the overall rejection rate of 3.9%. The portion of those international orders accepted that later turn out to be fraudulent is 2.4%, nearly two and a half times the overall rate of 1.0%.

Use of anti-fraud tools up across the board
Merchants are using more detection tools in their battle with fraud. During 2005, nearly two-thirds (65%) of merchants reported using 3 or more tools. Larger merchants, those with annual eCommerce sales greater than $25 million, reported an average of 7 fraud-finding tools in use. The most common anti-fraud measures used were Address Verification Service (AVS) and Card Verification Number (CVN). AVS compares numeric address data with information on file from the cardholder's issuing bank. 75% of merchants overall use this tool. CVN, the three or four digit numbers that are printed (not embossed) on cards, are designed to verify the person placing the order is actually in possession of the card. 66% of merchants overall used this tool in 2005, and 10% more say they plan to add it in the future. The next 4 most used tools listed were, in order of mention, Address Point Verification (32%), card association authentication tools like Verified by Visa and MasterCard Secure Code (29%), company specific scoring systems (28%) and negative lists (27%). Address Point Verification checks to assure that the address on the order exists and that it meets all the requirements to assure successful delivery.

Question/Survey details
The city and country questions were part of a larger survey, the Seventh Annual CyberSource Fraud Survey, commissioned by CyberSource Corporation and undertaken by Mindwave Research. The survey was fielded September 16 through October 6, 2005 and yielded 404 qualified and complete responses. The sample was drawn from a database of companies involved in electronic commerce activities. Incentive to respondents was a summary of the research findings.

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