Merchant fraud costs $3 for each dollar lost

Merchants in the United States and Canada incur an average cost of $3 for every $1 lost to fraud. That's according to the LexisNexis true cost of fraud study: ecommerce and retail report, conducted by Forrester Consulting on behalf of LexisNexis Risk Solutions.

Not surprisingly, the rise of digital services has emboldened criminals. Or, as LexisNexis put it in a press release, "As digital services become more prevalent in North America and daily life becomes increasingly digitized, cybercriminals find more opportunities to exploit both consumers and businesses."

In fact, more than half of organizations surveyed reported a fraud increase of 6 percent or more in the 12 months preceding the study, with digital channels accounting for 53 percent of overall fraud, LexisNexis said.

Digital transactions now drive over half of retail revenues and account for one-fifth of transaction volume, LexisNexis reported. In the United States, it's more like one-third of transactions and 69 percent of revenue.

Fraudsters apparently have moved with the transactions, because 60 percent of ecommerce merchants and 53 percent of brick-and-mortar retailers reported upticks in overall fraud levels. Brick-and-mortar retailers now identify fraudulent chargebacks as the fastest-growing type of fraud they deal with, while ecommerce merchants point to identity theft.

The impact of fraud on merchants is multifaceted, encompassing fines, fees, the face value of goods lost/stolen, and replacement costs. And then there is the customer experience. Seventy-five percent of organizations noted that fraud had a negative impact on conversion rates.

Difficult balancing act

Retailers are continually challenged with balancing the customer experience with the need to combat fraud threats, LexisNexis noted. Ongoing consumer adoption of new and emerging payment methods simply expands the fraudsters' attack opportunities and increases the risks of financial loss on the part of merchants.

The LexisNexis true cost of fraud study surveyed 358 risk and fraud executives in retail and ecommerce companies, in the United States (289) and Canada (69), about their company's fraud experiences over the previous 12 months. Here are additional key findings from the survey:

• Scams drive a major portion of fraud losses. Despite 46 percent of merchants stating they have made efforts to educate consumers about information security and scam protection, the number of consumers falling victim to scams continues to rise. About one-third of fraud losses in the region are attributed to scams.

• Credit and debit cards contribute the largest share of fraud losses, which the report attributes to the increasing frequency and scale of data breaches involving consumer data (including card data), as well as the widespread use of credit and debit cards.

• BNPL transactions account for 37 percent of fraud losses.

• Most fraud losses occur during new account opening, thanks to rising identity theft. Both brick-and-mortar and ecommerce merchants report that up to 47 percent of fraud losses stem from this stage in the customer journey.

"Striking the right balance between effective fraud management and a seamless customer experience is crucial," said Kimberly Sutherland, vice president, fraud and identity strategy at LexisNexis. "It's essential for merchants to ensure that customer onboarding and payment journeys are as frictionless as possible to prevent shopping abandonment and customer churn. To respond faster to emerging fraud trends and rising consumer expectations, merchants must take a dynamic and agile approach to risk assessment."

"Capabilities integrated via risk-based workflows, supported by deep troves of identity intelligence and robust linking technology, promote the flexibility necessary for safer and more convenient interactions and transactions."

Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.

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