August 2, 2018
The impact of fraud extends beyond simply the value of fraudulent transactions for merchants of all kinds. For several years, LexisNexis Risk Solutions has produced a multiplier that attempts to calculate the true cost to merchants. This year, the company found that every $1 in fraudulent online transactions actually cost merchants $2.94. But, depending on how large a merchant is, what type of goods they sell and what channels they sell them through, the cost can be much higher.
This week, LexisNexis released its 2018 True Cost of Fraud report specifically for the retail sector. The company found that the multiplier for the online channel is $2.96 this year. For digital-goods merchants that accept online payments through mobile devices, however, overall fraud costs are much higher. For midsize and large merchants (annual revenue in excess of $10 million) that engage in m-commerce to sell physical goods only, the multiplier is only $2.78, while merchants of the same size that sell digital goods incur $3.29 in costs for every $1 in fraudulent transactions.
The cost of fraud as a percentage of revenue also is higher for m-commerce merchants than for others. Domestic merchants at the physical POS lose 1.36 percent of their total annual revenue to fraud, according to the report. Fraud costs large merchants (More than $50 million in annual revenue) with an e-commerce channel 1.91 percent of their revenue, merchants that accept transactions from other countries via e- or m-commerce lose 2 percent and midsize and large merchants together ($10 million in sales or more) that sell digital goods via m-commerce lose 2.10 percent of their sales to fraud.
“The hotly competitive retail landscape means merchants must meet customer expectations for convenience and continually drive business growth,” said Kimberly Sutherland, senior director of fraud and identity management strategy for LexisNexis Risk Solutions. “However, these key drivers also have increased risk for identity-related fraud, especially with the rise of synthetic identities and the volume of botnet orders. Therefore, it’s crucial for retailers to not just invest in a large number of fraud prevention solutions, but the right combination and layering of the solutions to defend against different threats.”