Retailers and Ecommerce Merchants Align with Evolving Consumer Purchasing Preferences by Increasing Acceptance of Mobile Wallet, Buy Now Pay Later and Social Media Payments
LexisNexis® Risk Solutions unveiled the results of its 13th annual True Cost of Fraud™ Study: Retail and Ecommerce, which examines current transactional fraud trends in the U.S. and Canadian ecommerce and retail markets.
The LexisNexis Fraud Multiplier™ – an estimate of the total amount of loss a firm occurs based on the actual dollar value of a fraudulent transaction – estimates that every $1 lost to fraud costs U.S. and Canadian merchants an average of $3.75 and $3.19, respectively. The study, a survey of 791 risk and fraud executives, shows that the cost of fraud for U.S. merchants increased 19.8% since 2019, rising from $3.13 to $3.75, with that figure reaching $3.36 in early 2020.
A similar trend followed for Canadian merchants, with costs increasing from $2.87 to $3.19 and fraud rising 11.1% since early 2020, which was the first year the study included Canada. Ecommerce merchants have the highest Fraud Multiplier at $3.85 for the U.S. and $3.45 for Canada.
Survey respondents also indicated that mobile commerce (mcommerce) continues to be associated with an increase in fraud attacks. Year-over-year changes in average monthly attack volume are relatively unchanged for those that do not allow mcommerce, but that figure is 52% higher in the U.S. and 101% in Canada among those that do.
More retailers and ecommerce merchants have implemented mobile channel transactions since the start of the pandemic to meet changing consumer behaviors and preferences. Many merchants indicated they now follow a mobile-first strategy of designing the consumer shopping experience around a consumer’s mobile web journey. Mobile wallets, buy now, pay later (BNPL) apps and social media payments enhance the customer experience. However, with that comes increased fraud risk.
Key Findings and Trends from the Study:
- Attack of the Bots: U.S. retailers and ecommerce merchants were hit hardest by malicious bot attacks. Forty percent (40%) of U.S. retailers said they have experienced an increase in bot attacks over the past 12 months. U.S. ecommerce merchants identified a significantly higher percent of transactions as malicious (35%) compared to other segments.
- Fraud Through the Customer Journey: Identity fraud is a leading reason for fraud losses across the customer journey. Many merchants indicated that new account creation and/or the point of purchase were most susceptible to fraud. However, the percentage of fraud costs attributed to account logins or compromises is fairly similar to the amount attributed to other customer journey points.
- Bringing Together Security and Customer Experience: Roughly half of merchants indicated that they have fully integrated their digital customer experience operations with fraud prevention strategies. A sizeable minority of the remaining half are at least partially moving towards this objective, including deploying solutions that work behind the scenes to uncover digital attribute and behavior anomalies while minimizing customer friction.
The LexisNexis Fraud Multiplier estimates that every $1 lost to fraud costs $4.24 for organizations that neither integrate customer experience operations with fraud prevention strategies nor focus on optimizing fraud risk-to-friction levels. However, the estimated cost of fraud for those companies that do invest in that approach falls to $3.66.
“Businesses should take a multi-layered solution approach unique to different customer journey phases, which assesses the risks and behaviors within various digital channels,” said Maanas Godugunur, director, fraud and identity, LexisNexis Risk Solutions. “Study findings show that firms that follow this approach are likely to realize a lower cost of fraud, experience fewer successful fraud attacks per month and have challenges with identity verification, bot attacks and customer friction.”
LexisNexis® True Cost of Fraud™ Study: Ecommerce and Retail, U.S. and Canada Edition Methodology
This is the 13th annual extensive research study on U.S. merchant fraud and the second year surveying Canadian merchants. The study surveyed 791 risk and fraud executives in retail and ecommerce companies in the U.S. (689) and Canada (102) from November through December 2021. Respondents represented a wide spectrum of retail merchants. Findings provide a current snapshot of key pain points related to adding new payment mechanisms, transacting through online and mobile channels and expanding internationally, amongst other topics. The study also reflects activity, fraud risks, challenges and costs associated with pandemic impacts. The margin of sampling error for findings reported at an overall level is +/-3.5 at the 95% confidence interval.