Digital Merchants See $10 Million in Fraud-Related Operational Expenses

October 8, 2015         By: Mike Dautner

Based on a study conducted by Vesta Corporation with the help of Javelin, it has been determined that retailers of digital goods spend up to about 20 percent on fraud and chargeback management alone.

On top of typical fraud costs such as loss of goods as well as chargeback fees, merchants who also sell digital goods are on average spending $10.1 million on fraud-related expenses in one year. This number is likely to increase in the coming months.

In regard to the EMV transition, more than half, about 51 percent of digital goods merchants expect this increase to occur within the next twelve months more specifically.

In addition, personnel costs represent about 30 percent of fraud and chargeback spending for merchants overall—digital goods account for nearly five times the personnel as physical goods merchants, and about twice as many as “hybrid” merchants.

More than half of existing merchants feel that finding qualified and legitimate personnel for fraud and chargeback management is a difficult endeavor.

“This study makes it clear: fraud costs are eating into many merchants’ budgets, reducing the amount of money that could be spent on activities that grow and improve the company,” commented Al Pascual, Director of Fraud and Security at Javelin. “Unfortunately, if merchants don’t take action now, those costs will continue to rise as merchants attempt to mitigate the growth of online and mobile fraud.”

“Among hybrid merchants, who have been outsourcing fraud operations for many years, 65 percent said they found third-party services to be cost-effective,” said Christopher Uriarte, Chief Strategy and Payments Officer at Vesta Corporation. “Using a third-party provider can help merchants reduce the money and staff time they’re spending on fraud- and chargeback-related activities, freeing up resources for efforts that drive revenue and company growth instead.”