- Fraud losses exceed actual monetary amount stolen
- Mobile is the new target
- International criminal organizations are significant players
One of the harsh realities of fraud: actual LOSSES due to fraud exceed the monetary amount involved in the transaction. Digital Transactions reported on LexisNexis Risk Solutions’ “True Cost of Fraud” study for e-commerce and retail merchants, which reveals that each $1 in fraud costs e-commerce merchants in the United States $3.60 in total expenses. That compared to $3.13 pre-pandemic.
Of those costs, 47% is related to replacing and or redistributing lost goods.
In addition to the overall rising cost of fraud, U.S. merchants are experiencing higher fraud costs in the mobile channel. In 2021, the cost to retailers from a fraudulent transaction made with a mobile device has risen 27%, compared to just 8% in 2020. E-commerce merchants are seeing a 39% increase in the cost of fraudulent transactions made with a mobile device, up from 5% in 2020.
“This continues a trend based on fraud involving more mobile transactions, increased bot/cyberattacks and synthetic identities, which have been significantly heightened during the Covid-19 pandemic,” the report says.
Mobile is the New Target
The article goes on to note that the distribution of fraud by mobile-payment method among U.S. retail and e-commerce merchants has shifted from browsers to mobile apps and contactless forms, including text-to-pay/bill-to-mobile.
So far in 2021, mobile apps have accounted for 47% of fraud losses by mobile payment method for retailers, up from 38% in 2020, and 48% for e-commerce merchants, up from 36% in 2020. At the same time, text-to-pay and bill-to-mobile payments options are accounting for 28% of fraud losses by mobile-payment method for retailers, up from 12% in 2020, and 19% from e-commerce merchants, up from 3% in 2020.
Not only is fraud costing merchants more, sellers are seeing a higher number of attempted and successful fraudulent transactions. In 2021, U.S. retailers have seen an average of 1,740 fraud attacks per month, up from 1,515 per month in 2020, a 15% increase. Of the total, slightly more than half, or 872, have been successful, a 20% increase from 2020. Successful monthly attacks in 2020 totaled 727 or slightly less than half the total monthly attacks.
The article also reports that the distribution of fraud by mobile-payment method among U.S. retail and e-commerce merchants has shifted from browsers to mobile apps and contactless forms, including text-to-pay/bill-to-mobile.
Fraud Goes International
International criminal rings are also becoming significant players. The study reveals that attacks originating outside the U.S. represented 24% of total fraud attacks experienced by U.S retailers so far in 2021, compared to 13% in 2020. The same sort of increase is seen by E-commerce merchants: 29% of fraud attacks originate outside the U.S. in 2021 (so far), compared to 16% in 2020.
According to the report, among mid-to-large U.S. e-commerce merchants with 40% or more of their fraud costs coming from attacks originating outside the U.S.:
- 40% are more likely to have difficulty distinguishing bots from legitimate customers
- 30% are likely to have difficulty balancing fraud detection and customer friction with mobile transactions
A Multi-layered Approach to Fraud
A major point of emphasis from the article is that merchants take a multi-layered approach for fraud prevention/detection:
LexisNexis Risk Solutions recommends merchants take a multilayered-solution approach to fraud detection, including integration of cybersecurity operations with fraud prevention, cybersecurity alerts, social-media intelligence, rules-based fraud-detection strategies, artificial intelligence and machine learning and crowdsourcing models.
“Single-point protection is no longer enough and results in single point of failure,” the report says. “A multilayered, strong authentication defense approach is suggested.”
This is a similar approach that banks are taking to combat fraud -- particularly for checks. As check fraud has risen over the past few years, banks have modernized their fraud platforms to integrate transaction-analysis systems with image-analysis, leveraging forensic AI technologies. This protects banks and their customers from losses by identifying anomalous activities in transactions and interrogating the images of fraudulent checks to identify counterfeits, forgeries, and alterations.