Fraud cost online retailers an estimated $3.5b last year and will likely continue to grow as more eCommerce businesses open, driving up the number of vulnerable transactions. Most business owners view fraud as an unavoidable cost that needs be minimized independent of revenue generation. Yet, this belief ignores the non-monetary costs that fraud imposes on a business, such as time lost detecting activities or doing damage control. Fraud minimization and revenue maximization are not equivalent activities and the demands of each can quickly exhaust the bandwidth of small and medium sized organizations.
Total online sales are expected to grow to $1.3t worldwide in 2013, $343b of which is in the United States according to eMarketer. This increase is due to the volume of transactions, but also the increasing average transaction size. This suggests a growing willingness among consumers to purchase larger ticket items online and bodes well for the continued growth of eCommerce. While the increase in order value is positive, it exposes merchants to more risk on a per transaction basis.
Sophisticated technical capabilities and the extended reach of international payment and fulfillment systems are enabling a new generation of cyberthieves to commit fraud. These groups are able to scale the theft of our personal account information, goods, and cash through vulnerabilities in eCommerce platforms. As a result, the potential amount of value lost becomes significant.
While businesses that sell physical products are the most vulnerable in the consumer market, digital and service products are also susceptible to loss. Similarly, as enterprise products move to online purchasing and delivery, fraud is an increasingly relevant concern for the B2B market. By the end of 2013, B2B eCommerce is projected to top $559b and will continue that growth as more businesses become comfortable with the market. The cost of fraud in a B2B setting is not only monetary, but represents a loss of time that could be focused on sales or management.
The growing scale and scope of challenges has not gone unnoticed by the startup community. Players are emerging that address these security gaps by growing the network of data availability to cross check and understand behavior patterns. Startups like PinDrop are building risk assessment based on specific customer engagement channels. WePay is also building in social analytics to provide a richer data set for filtering and detection. Until now, startups serving the retail commerce market have dominated the fraud detection and prevention space, but the rise of B2B eCommerce is powering a new cluster of companies to deliver solutions to assess counterparty risk and unearth collusion and other fraud not captured in traditional detection screening.
Bowery Capital shares key insights regarding funding and growth from our 2022 B2B Marketplaces research.