John PescatoreA lot of press coverage this week on the 2009 Internet Fraud Report, produced by the FBI and the Internet Crime Center. That study says reported Internet fraud in 2009 totaled $560M. This number is based on reported incidents, so let’s assume it is low, say a factor of three low. So, let’s say the Internet fraud total was more like $1.5B in 2009.
The Department of Commerce says that 4Q09 online commerce was $36B, which would be $144B annualized. So, $1.5B in fraud is about 1% of revenue. That same Department of Commerce report says total retail in 4Q09 was $942B, or $3.768T annualized – man, we still buy a lot of stuff! Take away the $144B in online retail, and the annual traditional retail works out to be $3.624T.
Now, the National Retail Federation says that in 2008 (the latest numbers available) shrinkage (employee theft and shoplifting) in physical retail was 1.52% of revenue, up from 1.44% in 2007. So, given that there were predictions that tough economic times in 2009 would lead to higher rates of employee theft and shoplifting, the 2009 retail fraud rate may come in higher. But, let’s go with $1.52%.
So, even if I triple the online fraud estimates, it still looks to me like online retail actually has a 50% lower fraud rate than traditional retail. Yet, all the press coverage is on the “huge cost” of online fraud. Sort of like how much coverage there is on airline safety vs. highway safety – a good reason why not to make your decisions based on the “wisdom of crowds”…
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