Why fraud costs are up a staggering 94%
LexisNexis’ annual True Cost of Fraud report is out this week, and the headline is a doozy: US merchants on average now lose 1.32% of their annual revenue to fraud, a 94% increase over last year.
Put that in perspective: If every US merchant lost at the average rate, the fraud losses would add up to about $40 billion.
LexusNexus attributed the increase to a general surge in fraud and the high cost of manual fraud reviews:
The overall morale of merchants understandably took a hit as they not only dealt with increased fraud losses but also invested considerably more in fraud prevention to no avail — and sometimes to their detriment. Despite the use of automated systems in an attempt to more accurately and efficiently decision transactions, nearly three-fourths of all transactions flagged for fraud ended up requiring costly human intervention. Facing these and other challenges of online fraud (which is expected to continue to grow over the next few years), merchants have a daunting task in outpacing fraudsters.
Also interesting to us from the report is how much higher mobile fraud rates were than the overall fraud rate average — they clocked in at a 1.67% fraud rate. It’s likely because mobile experiences are often designed for ease, yet the easier you make it for a customer to make a purchase, harder it is to tell if the transaction is fraud. To bring this to life, mobile customers just won’t complete a checkout if you force them to fill in a bunch of information on a tiny screen. But that information is often the only way you can spot fraud, particularly if you aren’t using especially advanced fraud analytics.
Our approach is to respond to the problem by employing a range of technologies and techniques, from device ID to social media analytics, to enable us to catch the fraud while still maintaining a high conversion rate. Catching fraud is still tough. We have to spend a lot of time and effort every day fighting the good fight and keeping up with the emerging fraud threats and trends. Still, we think this approach beats the alternative.
If there’s a takeaway here, it’s this: Make your checkout as seamless as possible. But make sure you’ve got the fraud technology to back it up too.