LexisNexis study reveals increase in merchant fraud


According to the annual LexisNexis True Cost of Fraud 2015 study released on September 16, retail fraud revenue losses are up by a 94 per cent from 0.68 per cent in 2014. The survey of over 950 merchants revealed that retail fraud cost accounted for 1.32 per cent of total revenue in 2015; international retailers and mobile commerce merchants were effected most, with international retailers experiencing 1.56 per cent in revenue losses and mobile commerce merchants experiencing 1.68 per cent in revenue losses.

Monica Eaton-Cardone, COO of leading dispute mitigation and loss prevention firm Chargebacks911, attributes this increase to a lack of sufficiently stringent fraud protection processes.

Combating or mitigating losses from fraud has been an enormous expense for merchants, extending far beyond the price merchants pay for loss of goods. The LexisNexis study itemized costs directly related to fraud and found that for every $100 of fraud, retailers were forced to spend $223.
On average, merchants spend $7,000 per year on fraud mitigation efforts, while larger merchants spend upward of $100,000. A large part of this cost included manual reviews of suspicious activity with 46 per cent of potentially fraudulent transactions undergoing manual review. Per Vice President of Corporate Markets for LexisNexis Risk Solutions Dennis Becker, “Manual reviews are time-consuming and expensive, driving more costs into the business and causing customer friction, which can impact overall top-line revenue.” Eaton-Cardone points out that the manual review process still takes place in nearly half of all merchants despite automated systems available to be employed for this same purpose.

Additionally, the study found a huge spike in debit card fraud, with merchants attributing 30 per cent of fraud to debit card fraud in 2015 compared to 16 per cent in 2014. This is likely due to fraudsters attempting to use stolen data before the arrival of EMV. Eaton-Cardone touts EMV, also known as the “chip and pin” system, as the most secure method of payment. EMV utilizes a micro-chip to store sensitive information, rather than a magnetic stripe. Since EMV relies on the customer’s past history to determine if the purchase is valid or not, the customer’s buying patterns and spending habits are analyzed in about a millisecond in order to detect suspicious activity. “The reluctance of small to mid-size businesses to adopt this technology is alarming,” says Eaton-Cardone. “This does not bode well for the future of the fraud protection industry.”