As retail fraud rises, so do the average losses. According to the 10th annual True Cost of Fraud report for the retail sector from LexisNexis Risk Solutions, overall retail fraud attempts have doubled year-over-year and tripled since 2017.The study also found merchants pay $3.13 per lost dollar on average, up 6.5% from $2.94 in 2018. Extra costs result from expenses related to chargebacks, fees, merchandise redistribution, labor/ investigation, legal prosecution and IT/software security.
As a percentage of revenue, fraud cost the average retailer 1.86% of their annual revenue in 2019, compared to 1.8% in 2018 and 1.47% in 2016.In addition, retailers face a significant fraud threat from automated botnet attacks. Only 56% of respondents were able to give an estimate of botnet activity. On average, those respondents said fraudulent botnets represented 7.1% of their monthly transactions, and 33% said botnet activity has grown since 2018. Furthermore, the study reveals that retailers that conduct international transactions and allow m-commerce experience a large number of monthly fraud attempts. On average, mid/large-sized retailers with m-commerce and international commerce experienced 3,157 fraud attempts per month, including 1,830 prevented attempts and 1,327 successful attempts. Mid/large-sized e-commerce retailers with m-commerce and international commerce experienced 1,434 fraud attempts per month, including 767 prevented attempts and 667 successful attempts.
Small retailers with m-commerce and international commerce (the study did not divide them by traditional and pure-play) experienced an average of 1,593 fraud attempts per month, including 762 prevented attempts and 832 successful attempts. For mid/large-sized retailers, Asia-Pacific represented 28% of international fraud costs, followed by Eastern Europe/Russia (19%), Western Europe (13%), Canada (12%), South/Latin America (10%), Middle East (10%), and other (8%). Asia-Pacific also represented a leading 28% of international fraud for small retailers, followed by Canada (22%), Eastern Europe/Russia (16%), other (13%), Western Europe (12%), and Africa (9%)Other interesting findings from the study include:• Average monthly fraud volume rose 133% for mid-to-large-sized retailers selling digital goods through the mobile channel.• Fraudulent purchases represent a much higher percentage of fraud incidents among mid-to-large (69%) and small (66%) pure-play e-commerce retailers than among small (53%) and mid-to-large (55%) traditional retailers.
The study included a comprehensive survey of 700 U.S. risk and fraud executives in retail and e-commerce businesses.