LexisNexis has released its annual True Cost of Fraud study, revealing a staggering 94% increase in fraud losses for merchants since 2014. Merchants lost an average of 1.32% to fraud and fraud related costs this year, with mobile commerce and international retailers being hit the hardest.
Though investments into fraud protection are being made by some merchants, the results show more must be done to combat revenue losses. Large ecommerce merchants are spending $115,000 (£75,000) annually on fraud mitigation, yet on average are still losing out on 1.39% of their revenue to cases of fraud. For £multi-million businesses, this is a huge chunk of potential profits that is being lost.
The study also highlights chargebacks as a large fraudulent driver for merchants. With the rise in Card-Not-Present (CNP) transactions, the surge in remote channel fraud is now greater than ever. Small merchants and those with no physical presence are feeling the effects of chargebacks the most, particularly as they are often less likely to challenge chargebacks.
Financial institution executives are often unsure on their assessment of chargeback rates. Some insist rates have stabilised and fewer chargebacks have been seen from merchants in 2015, while others believe that chargebacks are consistently succeeding in transferring liability to merchants.
The good news is that fraud management is, on the surface, becoming less financially demanding: the LexisNexis Fraud Multiplier calculated a 28% drop in cost per dollar of fraud between 2014 and 2015, from $3.08 (£2.01) to $2.23 (£1.46) in 2015. However, these figures may seem positive but actually mask the fact that the surge in fraud through remote channels means that merchants are responsible for a larger portion of chargebacks and other fraud related expenses.
Overall, the study exemplifies the lack of sufficient protection processes used by merchants to help eliminate revenue losses and increasing fraudulent occurrences. With retail figures expected to soar in line with the upcoming holiday season, opportunities for fraudsters are growing fast. Black Friday (November 27th) and Cyber Monday (November 30th) are ideal days for opportunists to hit, with past fraud rates at an all-time high on these dates. The time has never been better for merchants to take proactive measures, reduce revenue losses and manage the growing storm of fraud in a cost-effective manner.
