September 26, 2017
As e-commerce merchants continue to invest in fraud prevention, those efforts cost, on average, 8 percent of their annual revenue, up from 7.6 percent last year, according to a new report. Exploring the Financial Impact of Fraud in a Digital World, commissioned by antifraud technology provider Vesta and undertaken by Javelin Strategy & Research, found digital-only merchants are devoting even more resources to fraud prevention—9.7 percent of their yearly revenue.
And, despite the additional investment, many merchants are struggling to keep up, according to the data. Losses from chargebacks spiked compared to the year before—digital-goods merchants reported 60 percent more revenue lost to chargebacks in 2017 compared to 2016, while the losses of physical-goods merchants grew 75 percent from last year to this year.
“Merchants’ fraud costs continue to rise year over year,” said Javelin Research Director Al Pascual. “While some merchants have experimented with new fraud-fighting tools and tactics, on the whole, they haven’t been able to keep pace with dynamic fraudulent threats.”
From an operational standpoint, e-commerce merchants devoted 21 percent of their budgets to fraud management in 2017 compared to 18 percent in 2016 and the number was even higher for merchants that sold only digital goods.
The report makes several recommendations, noting merchants must move beyond static authentication methods like username/password combinations. They also must implement newer fraud mitigation tools like behavioral biometrics, 3D Secure 2.0 technology and others that “maximize fraud prevention while minimizing impact to customer experience,” the report said.