E-commerce Fraud Sizable, says LexisNexis Risk Solutions True Cost of Fraud Study

Staff Report

Friday, November 17th, 2017

LexisNexis Risk Solutions, a unit of RELX Group, released its 2017 True Cost of Fraud study on the e-commerce sector. The study notably finds that mid/large sized e-commerce retailers face higher costs of fraud than smaller outlets who see less than $10 million in e-commerce sales. According to the LexisNexis Risk Solutions Fraud Multiplier, for every dollar of fraud, mid to large e-commerce companies incur $3.37 in costs, which includes chargeback fees, merchandise replacement and employee costs.

Based on a comprehensive survey of 190 risk and fraud executives in retail organizations that earn 80 percent or more of their revenue through online or mobile channels, the study helps online and mobile merchants grow their businesses safely, in a sales channel where the risk of fraud is still growing.

"As traditional retail sales continue to migrate into the digital space, the e-commerce sector should remain vigilant in recognizing fraud and integrate appropriate risk mitigation solutions into their operations," says Paul Bjerke, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. "With mobile payments emerging as a popular technology, fraud will likely only grow. Mobile payment fraud already accounts for 2.6 percent of total revenues for merchants who offer that capability. With both new technologies and new criminal methodologies, merchants must constantly work to evolve their fraud prevention practices."

Many of the higher fraud volumes that have been reported can be attributed to less than optimal approaches that e-commerce organizations have taken in fraud identification and prevention. For instance, many merchants do not adequately track prevented vs. successful fraudulent transactions, which would help them better manage and fight fraud. While nearly half of mid/large sized merchants track fraud costs by both channel and payment method, there is still a sizable portion that do not. This weakens their ability to fully identify and manage weak points in their protection efforts.

Notably, smaller e-commerce merchants, with less than $10 million in annual sales, are actually more at risk than their larger counterparts. These smaller merchants pay $2.38 in costs for every dollar of fraud they intake, and also see 48 percent of their monthly transactions come in as fraudulent. With the significant differences between and challenges that small and mid/large sized companies face, no one answer will solve for all fraud. Whether it's a domestic seller vs. an international seller, digital goods vs. physical goods, mobile based-transactions vs. non-mobile, each merchant must address its unique risk profile, and work to solve and implement solutions from a suite of options.

Kimberly Sutherland, senior director, fraud and identity management strategy, LexisNexis Risk Solutions adds: "Despite mid/large e-commerce merchants using advanced identity authentication and transaction verifications, our findings suggest they are not using the right combination of tools. Coupled with their willingness to invest in fraud prevention measures, merchants of all sizes can see a reduction in fraud costs in the near term, with a targeted layering of identity and transaction verification solutions, as well as increased diligence in fraud tracking."