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LexisNexis Risk Solutions True Cost of Fraud Study Finds Fraud Costs Increased 7.3% for U.S. Retailers Year over Year

Study examines e-commerce and retail fraud trends before and during the COVID-19 pandemic


ATLANTA — LexisNexis® Risk Solutions has released its 11th annual LexisNexis Risk Solutions 2020 True Cost of FraudTM Study: e-Commerce/Retail Edition. The study that surveyed risk and fraud executives at e-commerce and retail companies in the U.S. and Canada reveals that fraud continues to increase and most acutely affects mid to large-sized e-commerce and retailers. Retailers experienced increased online and e-commerce fraud volumes and monetary losses correlating to a mass shift to online and mobile transactions during the COVID-19 pandemic.

The result of increased fraud volumes translates into a 7.3% increase in the cost of fraud year-over-year for U.S. e-commerce and retail merchants. The LexisNexis Fraud Multiplier℠ – the total amount of costs related to fees, interest, merchandise replacement and redistribution per dollar of fraud for which the merchant is held liable – shows fraud now costs companies $3.36 for every dollar lost to fraud compared to $3.13 in 2019 and $2.40 in 2016.

The True Cost of Fraud Study is a comprehensive survey that compares fraud rates, impacts and challenges related to fraud detection and prevention year-over-year and during COVID-19.

Key Findings and Trends from the Study

  • Successful Fraud Attacks Increase: The average volume of monthly fraud attacks increased 9% for U.S. retailers year-over-year while the average number of successful monthly fraud attempts increased 43% - 48% for mid to large retailers and 27% for smaller retailers. Attack volumes were already trending upward prior to the shutdown as mobile and online channels traditionally have higher fraud rates. Some of this growth is due to increased transaction volume due to the temporary closing of brick-and-mortar retailers during the pandemic.

  • Shutdown Spurs Increase in Fraud Costs: A comparative analysis of those surveyed showed that average monthly fraud attack volumes were significantly higher for specific retail segments who responded to the survey during the shutdown. Mid to large general merchandise retailers selling physical and digital goods had on average 70% more fraud attempts per month than those surveyed prior to the shutdown in March 2020. Businesses that continued operations during the pandemic who had higher mobile purchase transactions with in-store pick up experienced more fraud volume and coinciding higher fraud costs since these retailers had to rely on store employees for identity authentication rather than solutions designed to detect mobile fraud.
  • Retailers Struggle to Keep Pace with Fraudsters: Retailers are finding it difficult to distinguish legitimate customers from malicious bots while balancing fraud prevention with risk-appropriate customer friction. This becomes even more complicated when purchases involve third-party, non-bank payment providers where transaction speed and volume are high and transparency into complex payment chains and end-customer profiles is low. Mid to large retailers selling digital goods are more challenged detecting and preventing fraud within these payment types. Fifty-eight percent of retailers selling digital goods say differentiating synthetic identities is a top verification challenge. Businesses new to mobile commerce contend with these issues more than businesses with more established fraud and risk mitigation solutions.

“Retailers and eCommerce merchants should be prepared for increased fraud attacks and costs for the foreseeable future,” said Kimberly Sutherland, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. “It is unclear how the COVID-19 pandemic will shape the purchasing landscape over the next few years, although we do know that fraudsters will continue to shift tactics quickly in response. The most effective way for businesses to fight fraud and protect their consumers is by performing a more complete assessment, combining physical and digital identity data of those making purchases.

“High fraud costs impact e-commerce merchants and retailers as sophisticated threats increase,” Sutherland continued. “A multi-layered strategy can protect retailers and e-commerce merchants throughout each buyer experience. Every transaction channel and type carry unique risks. Using different solutions to support fraud detection at various points in the consumer journey will strengthen overall defense.”

LexisNexis Risk Solutions 2020 True Cost of Fraud Study: e-Commerce/Retail Edition Methodology
This is the 11th annual comprehensive research study on U.S. merchant fraud and the first year surveying Canadian merchants. This year’s study surveyed 801 risk and fraud decision makers from late February through late April 2020. Respondents represented a wide spectrum of retail merchants: retailers offering e-commerce, retailers receiving a majority of their income though online or mobile channels and retailers offering mobile commerce. The margin of sampling error for findings reported at an overall level is +/-3.5 at the 95% confidence interval. Data reflects the U.S. and Canadian merchant population based on weighting to U.S. Economic Census.

Download a copy of the annual LexisNexis Risk Solutions True Cost of Fraud Study: e-Commerce/Retail Edition and join our webinar with Chris Schnieper, director of fraud and identity at LexisNexis Risk Solutions, on July 29, 2020 at 2:00 p.m. ET (U.S.) for an in-depth look at the study.

About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data, sophisticated analytics platforms and technology solutions to provide insights that help businesses across multiple industries and governmental entities reduce risk and improve decisions to benefit people around the globe. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers. For more information, please visit LexisNexis Risk Solutions and RELX.

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