Atlanta -- The “True Cost of Fraud” study by LexisNexis found that retailers incurred $2.70 in costs for every dollar in fraudulent transactions. The cost incorporates charge backs for merchandise, the fees and interest to financial institutions and payment processors as well as any replacement, redistribution or restocking fees incurred by a merchant.
The study, conducted by Javelin Strategy & Research, examined how fraud affects retail merchants, financial institutions and U.S. consumers, as well as identified and quantified the losses involved in a fraudulent retail transaction.
Findings from the study showed the cost of fraud is on the rise compared with last year. This year’s cost of $2.70 per $1.00 in merchandise is up $0.40 from last year’s level of $2.30. One of the areas of major fraud growth is the mobile sector. This year, mobile merchants paid $2.83 for every $1.00 lost compared to just $2.00 for 2011, an increase of more than 40%. The analysis in the study showed that criminals are shifting more attention to merchants that use a broader array of sales interaction methods, including browser, applications, text and evolving near-field communication methods.
The study also found:
- The LexisNexis Fraud Multiplier among international merchants has risen from 2.2 to 2.5 since last year, an increase of almost 14% per dollar of fraud;
- Only 39% of merchants believe that lower fraud rates can increase customer loyalty, meaning 61% don’t relate fraud reduction to improved customer loyalty; and
- 33% of consumers who fall victim to fraud avoid certain merchants. Thus, customer confidence is critical in maintaining and improving reputation and translates into return customers for merchants demonstrating they have earned that trust.
“With the size and pattern of fraud significantly impacted by global economic conditions and the move to mobile payments, this turbulent time requires merchants to be more vigilant than ever,” said Jim Rice, director, market planning, retail and e-commerce markets, LexisNexis Risk Solutions.