LexisNexis Risk Solutions Releases True Cost of Fraud Study

If it seems like cases of fraud and the associated costs are rising, that’s because they are. LexisNexis Risk Solutions has released its True Cost of Fraud study detailing how a combination of factors has contributed to the past year being one of, if not the worst years for merchant fraud and losses.

By the numbers according to the report:

• Merchants are paying more per dollar of fraud in 2014 ($2.79 in 2013 to $3.08 in 2014), driven by an increase in costs associated with mobile-channel fraud as more physical-goods retailers begin to accept mobile payments. Mobile-channel frauds cost merchants $3.34 per dollar of fraud losses, while “other” channels (including mail and telephone) experienced similar fraud costs at $3.29 per dollar of fraud. This is dramatically higher than the online channel at only $2.69 in fees per dollar of fraud.

• Merchants are also losing a significantly higher percentage of revenue to fraud this year, at 0.68%, compared to 0.51% in 2013. This increase in fraud losses is the result of a higher volume of fraudulent transactions completed against merchants this year. The average merchant suffered 133 successful fraudulent transactions per month this year, up 46% from last year.

It appears that 2015’s upcoming EMV upgrade has stirred up hackers into a feeding frenzy, hoping to take advantage of the U.S.’s legacy mag-stripe vulnerabilities before it’s gone for good.

Growing digital currency adoption has caused uncertainty among international merchants. These international sellers were 11 times more likely to experience fraudulent digital currency transactions than their digital currency accepting, domestic-only counterparts.

Aaron Press, LexisNexis Risk Solutions Director ecommerce and payments, says that the EMV upgrade is not enough.

While EMV may cut down on fraud at the point of sale, Press says, “For eCommerce, however, EMV may actually increase fraud. Because fraudulent card credentials will no longer be useful at POS, fraudsters are likely to turn to the online channel.”

EMV must work in conjunction with tokenization. “If tokenization is widely adopted, it can help alleviate both POS and ecommerce payment fraud by reducing the volume of payment credentials available to fraudsters. “