Study: E-commerce fraud is declining — but the battle continues

E-commerce fraud as a percent of sales dollars may be on the decline, however losses still account for billions of dollars.



This was according to the “Q1 2017 Global Fraud Index,” a report from Pymnts.com and Signifyd. The study measures and benchmarks innovations and trends that are reshaping the payments and commerce ecosystem.



E-commerce fraud is on the decline, dropping 34.7% in first quarter 2017, compared to first quarter 2016. One of the main reasons behind the drop is due to the use of machine learning in fraud prevention solutions. Besides raising the bar against a global network of cybercriminals, machine learning surpasses the capabilities of previous solutions that use static rules to distinguish real orders from fraudulent ones, according to the report.



While these tools have contributed to a decline in fraud rates across many retail segments since first quarter 2016, there are exceptions. Specifically, apparel, department stores, and jewelry and precious metals remain targets. In fact, department stores have seen a whopping 146.5% increase in online fraud between first quarter 2016 and first quarter 2017.



Apparel e-commerce merchants were also targeted by fraudsters during 2016. However, retailers that began fighting back saw their efforts pay off. By first quarter 2017, the segment’s fraud rates were only slightly higher than they were a year ago: increasing from 8.78% during first quarter 2016 to 8.89% during this quarter.



Overall, fraud still accounts for billions of lost dollars — and as expected, fraud rates rise significantly as order values increase. In first quarter 2017, orders over $500 had a total fraud rate of 10.93%. This is more than 20-times higher than orders that were under $100, which had a total fraud rate of 0.52%, the study said.