Unplugged: International e-commerce presents hazards, instances of fraud for U.S., Canadian merchants

By Manufacturing Business Technology Staff February 6, 2009

International electronic commerce (e-commerce) can be a risky undertaking for U.S. and Canadian merchants, according to new data from CyberSource . During 2008, 30 percent of surveyed merchants that accept international orders online stopped taking orders from one or more countries due specifically to high levels of fraud. In that group, 76 percent of merchants shut off orders from Nigeria, 58 percent froze out Ghana, and 32 percent slammed the door on Pakistan.

Other countries blocked in 2008 included Indonesia (23 percent); Singapore (19 percent); Romania (18 percent); China, Russia, and Vietnam, each with 13 percent; and South Korea and Hong Kong with 10 percent each.

“International e-commerce represents great opportunity and challenge—simultaneously,” says Doug Schwegman, CyberSource director of market and customer intelligence. “Growth rates beyond U.S. and Canadian borders remain considerably higher than here. So during difficult economic times, expanding international e-commerce is a logical move for many merchants. But overall rates of fraud require merchants exercise great care in handling orders received.”

Accepting international orders is common among U.S. and Canadian merchants. According to the survey, over half (52 percent) of e-commerce merchants today accept orders from abroad—and those orders now account for 17 percent of their total sales. But fraud rates are high and climbing. Merchants say 4 percent of international orders turn out to be fraudulent—that’s 3.6 times the domestic rate of 1.1 percent The international fraud rate has increased 67 percent since 2005.

Given the fraud risk that exists with overseas orders, it’s no surprise that merchants reject more orders from abroad. The rate of order rejection due to suspicion of fraud on international orders is almost four times that for orders originating in the U.S./Canada. In 2008, nearly 11 percent of international orders were given the thumbs down—compared to 2.9 percent of orders that came from northern North America.

The survey data also showed some leading centers for e-commerce fraud in the U.S. and Canada. Fully 25 percent of respondents said New York “presented the highest risk of fraud” among cities in the U.S. and Canada. Miami was second at 21 percent, and Los Angeles a distant third at 9 percent.

Question/Survey details

Questions about country and city origins of e-commerce fraud were part of a larger survey, the tenth annual CyberSource fraud survey, commissioned by CyberSource Corporation and undertaken by Mindwave Research. The survey was fielded October 21 through November 11, 2008, and yielded 400 qualified and complete responses from U.S. and Canadian e-commerce merchants. The sample was drawn from a database of companies involved in electronic-commerce activities. Incentive to respondents included a summary of the research.

Obtain survey results here .