True cost of fraud escalates, LexisNexis study shows

Fraud is a persistent problem in payments that seemingly grows year-by-year, despite new and emerging technologies and processes intended to thwart fraudsters. The LexisNexis True Cost of Fraud Study: Ecommerce and Retail Report, covering the United States and Canada, revealed that U.S. merchants incur an average all-in cost of $4.61 for every $1 in fraud, compared to $4.52 in Canada.

Mobile transactions, such as digital wallets, peer-to-peer payments and QR codes, are driving much of the ecommerce fraud costs, accounting for 33 percent of expenses in the United States and 41 percent in Canada. U.S. ecommerce merchants saw the highest fraud costs from digital transactions, with 51 percent tied to online purchases and 30 percent to mobile channels.

But here's the kicker: many businesses (about three in 10 U.S. companies) expect their fraud-fighting budgets to stay the same. "This suggests that organizations feel their current fraud strategies are sufficient," the report stated.

Driving customer churn

Fraud increases customer churn for 63 percent of businesses, forcing them to allocate more resources to fraud management. Sixty-four percent of corporate executives surveyed said fraud hurts customer conversion rates, which highlights the challenge of balancing strong security with customer experience.

A significant number of businesses have yet to adopt fraud prevention tools, such as AI models, behavior biometrics and third-party detection systems. Forty-one percent of North American merchants still depend on manual processes to prevent fraud, LexisNexis found, which highlights widespread reliance on outdated methods of fraud detection and prevention

"Rising fraud costs strain businesses financially and damage customer trust," said Maanas Godugunur, senior director, fraud and identity, at LexisNexis Risk Solutions. "Staying ahead of fraudsters requires AI-powered fraud detection and a multi-layered approach that identifies fraud in real time while safeguarding the customer experience."

Optimism overlooks key problems

Identity fraud is a persistent threat during account creation the report explained, with identity verification ranking among the top challenges across all segments. Up to 48 percent of businesses cited this a top challenge.

Up to 41 percent of U.S. businesses surveyed identified identity verification as a major challenge at new account creation, higher than for purchase transactions (36 percent) and account logins (37 percent). Email and device verification also ranked high, with as many as 41 percent ranking it among their top 3 challenges.

The report noted that confidence in fraud detection may be misleading. While over 70 percent of businesses rate their fraud detection "mostly effective" or better, gaps in verification and authentication raise questions about their ability to fight evolving fraud tactics.

The same holds true about optimism expressed about future fraud detection. For example, 79 percent of U.S. ecommerce businesses in the study indicated they expect fraud detection to improve, yet persistent vulnerabilities in identity verification could leave them exposed, the report noted.

The LexisNexis study drew on a survey of 569 fraud and risk executives across U.S. (487 executives) and Canadian (82) executives at retail ecommerce companies in late 2024 and early 2025.

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