Retail fraud attempts have doubled over the last 12 months and tripled since 2017, according to the 2019 LexisNexis Risk Solutions True Cost of Fraud report.
Fraud grew fastest among small merchants that sell digital goods and have annual revenue below $10 million. Average fraud attempts for retailers in that category rose 128.5% compared with 2018, reaching 1,604, of which an average of 722 (45.0%) were successful. Digital goods include products such as electronic gift cards, downloadable software, e-books, mobile apps and cloud-based applications.
The largest number of average monthly fraud attempts occurred at mid-sized and large retailers (those with revenue topping $10 million per year) that sell digital goods. They suffered 2,913 average monthly attacks, up 104.3% from 2018. Of those attempts, an average of 1,135 (38.7%) were successful.
Second-hardest hit were mid- to large-sized ecommerce retailers that sell only physical goods. Average monthly fraud attempts for that group grew to 1,780, up 55.5% from 2018. Of those attempts, an average of 651 (36.6%) were successful.
The study found merchants pay an average of $3.13 per every $1 of fraud, up from $2.94 last year—a 6.5% increase. Those costs include those related to chargebacks, fees, merchandise redistribution, labor/investigation, legal prosecution and electronic security.
As a percentage of revenue, the average cost of fraud reached 1.86% in 2019, up from $1.80% in 2018, 1.58% in 2017 and 1.47% in 2016, LexisNexis Risk Solutions found.
The LexisNexis Risk Solutions study, which includes both in-store and ecommerce merchants, is based on a survey of 700 risk and fraud decision makers in retail (including ecommerce) businesses. The executives were surveyed in January through March 2019. Respondents represented a wide spectrum of retailers, including ecommerce merchants, retailers receiving most of their income through online or mobile channels and retailers offering mobile commerce, LexisNexis Risk Solutions says.
Among the other key findings:
- More small retailers offer digital goods: While mid- to large-sized retailers and ecommerce merchants are more likely to offer digital goods, small retailers offering digital goods more than doubled year over year, up from 11% to 26%. That surge broadened the landscape for fraudsters by adding smaller, less-secure targets.
- Mobile commerce is a target-rich environment: Fraud volume is significantly higher among retailers allowing mobile commerce transactions compared with those that don’t. For example, among mid- to large-sized retailers that sell digital goods, average fraud attempts came to 3,085 for those that allow mobile commerce transactions, compared with 2,411 for those with no mobile commerce option.
- Synthetic identity fraud is a growing threat: Ecommerce merchants who transact through a mobile browser or app believe the rise of synthetic identities is their greatest challenge fighting fraud during digital goods sales transactions. Synthetic identities can be comprised of real and/or fake personal information. 79.0% of mid- to large-sized ecommerce merchants and retailers and 68% of smaller ones rate the rise of synthetic identities as a significant issue. Ecommerce merchants who transact through a mobile browser or app believe that the rise of synthetic identities is their greatest challenge fighting fraud during digital goods sales transactions.
- International transactions can pose a threat: Fraud attempts are highest for retailers that conduct international transactions and allow mobile commerce. That is particularly true for mid-sized and large retailers in that category, which see an average of 3,157 fraud attempts per month, of which 1,327 (42.0%) are successful.
“There currently exists a perfect storm of increased cross-border, digital and mobile fraud, and executives are under pressure to deliver prevention solutions that stem escalating fraud losses,” said Kimberly Sutherland, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. “To effectively fight fraud, it’s crucial that all merchants understand that there is no one-size-fits-all solution. There’s no doubt that those using a layered solution approach involving identity authentication, transaction verification, digital identity tools and behavioral biometrics are better prepared to fight fraud.”
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