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True Cost of Fraud Study Finds 7.3% Increase for US Retailers

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

The 11th annual LexisNexis® Risk Solutions 2020 True Cost of FraudTM Study: E-commerce/Retail Report surveyed risk and fraud executives at e-commerce and retail companies in the US and Canada and reveals that fraud continues to increase and most acutely affects mid- to large-sized e-commerce retailers and merchants. 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 US e-commerce and retail merchants. The LexisNexis Fraud Multiplier℠ shows that every $1 lost to fraud now costs companies an additional $3.36 compared to $3.13 in 2019 and $2.40 in 2016—an increase of $0.96 over five years. US costs are significantly higher than the cost that Canadian retailers face per $1 lost to fraud at $2.87.

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.

- Digital Partner -

Key Findings and Trends from the Study

Successful Fraud Attacks Increase. The average volume of monthly fraud attacks increased 9% for US retailers year-over-year while the average number of successful monthly fraud attempts increased 43% to 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.

Kimberly Sutherland
Kimberly Sutherland

“Retailers and e-commerce 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.”

LP Solutions

Study Methodology

This is the 11th annual comprehensive research study on US 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, including 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 US and Canadian merchant population based on weighting to US Economic Census.

LexisNexis True Cost of Fraud study
Click here to download a copy of the full report

Click here to download a copy of the full report and join the webinar with Chris Schnieper, director of fraud and identity at LexisNexis Risk Solutions, on July 29, 2020 at 2:00 pm EDT (US) for an in-depth look at the study.

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