LexisNexis® 4th Annual True Cost of Fraud Study

Retailers incurred $2.70 in costs for every dollar in fraudulent transactions according to the 4th annual LexisNexis® True Cost of Fraud Study. The study utilizes the LexisNexis® Fraud Multiplier, which calculates the “true cost” of fraud incurred by merchants. That 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 also reveals that retailers who offer mobile payments, e-commerce and sell internationally are becoming greater targets for fraud. In addition, the study quantifies the impact that fraud has on customer loyalty.

The 4th annual LexisNexis® True Cost of Fraud Study, conducted by Javelin Strategy & Research, examines how fraud affects retail merchants, financial institutions and U.S. consumers, as well as identifies and quantifies the losses involved in a fraudulent retail transaction.

Findings from the study show the cost of fraud is on the rise compared to 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 percent. The analysis in the study shows 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 percent per dollar of fraud;

Only 39 percent of merchants believe that lower fraud rates can increase customer loyalty, meaning 61 percent don’t relate fraud reduction to improved customer loyalty; and
33 percent 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.

“Our research clearly indicates that customers are less inclined to do business with merchants with which they’ve experienced fraud, yet a surprising majority of merchants surveyed in this study are not aware of this costly after-effect.”

The study was conducted through an online survey completed by a merchant panel comprised of more than 1,000 participants.

Javelin Strategy & Research is the leading provider of quantitative and qualitative research focused on the global financial services industry. Our extensive quantitative data and deep analyst experience enable us to forecast the direction of the financial services market and make recommendations that empower you and your business to succeed.

LexisNexis Risk Solutions is a leader in providing essential information that helps customers across all industries and government predict, assess and manage risk. Combining cutting-edge technology, unique data and advanced scoring analytics, Risk Solutions provides products and services that address evolving client needs in the risk sector while upholding the highest standards of security and privacy. LexisNexis Risk Solutions is part of Reed Elsevier, a leading publisher and information provider that serves customers in more than 100 countries with more than 30,000 employees worldwide.

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