One more year, we are glad to read the latest edition of The LexisNexis True Cost of Fraud Report 2013, which has been published in cooperation with Javelin Strategy. The Report gives an in-depth insight of how merchants are affected by fraud and, most importantly, how the defend themselves against it. Among all the conclusions drawn from the data analyzed, we would like to highlight the following statements:

Fraud through online channel costs merchants $3.10 for every dollar of fraud in 2013
Online channel registered one of the highest increases on fraud (32%) compared to last year. Merchants accepting payment through different channels (offline and cash on delivery) attributed 42% of fraudulent transactions to the online channel, which might explain the increase and the high cost of fraud in this channel. Needless to say, CNP transactions and any other method where payment is not physical entail a higher risk. Fraudsters are aware of this high risk and fine tune their attacks to exploit the weaknesses, if any, of these online methods. As a result, the incidence of fraud in the online channel is both more frequent and expensive.

Fraudsters are shifting to those fraud types that are associated with greater costs
Linked up with the first point, the Report highlights an increase of fraud causes associated with fake accounts and account takeovers, whereas direct card fraud is in decline this year (11% decrease in the amount of consumers that reported card fraud according to Javelin Strategy). For merchants, this trend means that fraudsters are heavily focusing on more sophisticated fraud schemes that generate orders which blend in like a genuine one and are more difficult to detect. That is, an increasing sophistication of fraud entails bigger margins for fraudsters, who can make unlimited undetected fraudulent orders in very little time.

Larger merchants use more than 5 fraud mitigation tools, and prove to suffer less fraud comparatively
Given the increase on fraud attacks and their sophistication, some large merchants are protecting their online operations by combining several tools. As expected, these merchants are suffering less fraud than other merchants relying on one or two tools. Combining several tools allows merchants to analyze higher volumes, thus they access, detect and learn from a wider array of coordinated attacks. The experienced and exposure acquired enables these merchants to prevent ten times more fraudulent transactions than other merchants.

Indeed, as pointed out in previous articles, no single solution when used alone can effectively prevent online fraud. A comprehensive fraud verification system is likely to count on a wide combination of verification tools that enable screening of every transaction from all possible attributes. This would reduce the fraud suffered by merchants, as it would make fraudulent transactions more visible. These systems are able to effectively block fraud within any online payment method, even those that are vulnerable to the current shifting fraud schemes. Therefore, merchants counting on these verification systems are able to:

  • Reduce fraud by effectively blocking only those transactions that are fraudulent
  • Increase their acceptance rate by securely deploying a wide array of online payment methods on their websites
  • Focus on their businesses’ core competencies by removing uncertainties caused by the threat of online fraud