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E-commerce is a hotbed of fraud

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Internet fraud is sky high, according to Gartner, and Web companies are picking up the tab. A survey of 160 companies confirmed many people's fears by saying that fraud over the Internet is 12 times higher than traditional retailer sales.

Another indication that this is the case comes from the terms that credit card companies give e-tailers. Traditional retailers pay credit card discount rates of 1.5 per cent plus 30 cents a transaction (yes, this is an American survey). Online retailers on the other hand pay a higher rate of 2.5 per cent plus the 30 cents. According to Gartner, they also have to pick up the cost of Net gateways and fraud detection - another 50 cents a transaction.

It's gets worse, too. Online sellers also spend more money checking and processing orders. It's no surprise then that credit companies are keeping their distance - something that Avivah Litan of Gartner Financial Services thinks a little unfair. There are alternatives though, he said. "Several savvy startup competitors are giving e-tailers alternatives to credit cards, such as processing that accesses bank accounts directly or via closed loop systems. At the current rates, those firms could give the card companies a run for their money."

Further evidence also comes from the Home Office, which released figures saying online fraud had grown 20 per cent in the last year. According to the CBI, 60 per cent of UK businesses are targeted each year, although many are unwilling to admit attack to avoid damaging their reputations.

The Reg is still waiting for an in-depth study of margins and profits in the online world. For example, are tighter margins overcome by a greater number of orders and lower operating costs? How many of these companies are running a loss on each transaction? Are mother companies subsidising their online arms? If so, how many and by how much? It's about time someone attempted to come up with some answers.

Whether this will be Gartner, which apparently "provides unrivaled thought leadership for more than 10,000 organizations" (ugh), or someone like Forrester, which frequently comes up with the goods, has yet to be seen.

Incidentally, we also think there should be official guidelines on surveys. This survey that we've just written about and will no doubt be plastered all over the IT press was based on just 160 companies. Considering there must be hundreds of thousands of on and offline retailers - is this figure just a wee bit small? And what 160 companies? We hate surveys. ®

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