LONDON (Reuters):

Cyber fraud is costing retailers an estimated 580 million per year - a figure which could surge almost three-fold by 2010, says a new report.

Almost two thirds of online merchants have been affected by Internet fraud, losing on average three per cent of their turnover, according to research by pay-as-you-go Visa voucher firm 3V.

With figures from retail body IMRG suggesting that annual online sales could surge to 78 billion over the next three years, cyber fraud could cost retailers 1.5 billion per year by 2010 if the current trend continues.

More than a third of retailers have experienced a marked increase in fraudulent activity online since the introduction of chip and PIN on the high street, the survey found.

And 43 per cent of retailers said the prospect of being hit by fraud is becoming a growing concern by the day.

Andrew McClelland, director of projects and marketing at IMRG, said: "The research from 3V highlights just how serious the problem of Internet fraud has become for the online retail industry.

Target for fraudsters

"While the industry is rapidly expanding, it obviously provides a tempting target for fraudsters."

Two thirds of retailers are increasing security measures on their sites, but one fifth said systems introduced by payment providers to combat fraud are placing a growing burden on the consumer - like the need to remember multiple passwords.

The industry has been stepping up its fight against fraud of late, with the likes of Barclays sending out hand-held chips and PIN card readers to online banking customers.

APACS, Britain's payments association, also plans to try the next generation of fraud prevention technology, designed to safeguard consumers when buying goods over the Internet, by telephone or mail order.

Europe's fledgling pre-paid card and voucher market also hopes to help tackle the threat of card-not-present fraud.

Kieron Guilfoyle, chief executive of 3V, said: "While some giant steps have been taken by the retail and payments industries in the last few years to combat the problem of CNP fraud, the impact it is having on some e-retailers is immense.

"And that's why the growing use of safe shopping products like 3V vouchers is good news."

While losses through many types of fraud are on a downward trend - card-fraud losses declined three per cent to 428 million and cheque losses fell 24 per cent to 30.6 million last year - online banking losses have soared, increasing 44 per cent to 33.5 million.