According to the 10th annual True Cost of Fraud report for the retail sector from LexisNexis Risk Solutions, overall retail fraud attempts have doubled year-over-year and tripled since 2017.
The study also found merchants pay $3.13 per lost dollar on average, up 6.5% from $2.94 in 2018. Extra costs result from expenses related to chargebacks, fees, merchandise redistribution, labor/ investigation, legal prosecution and IT/software security.
As a percentage of revenue, fraud cost the average retailer 1.86% of their annual revenue in 2019, compared to 1.8% in 2018 and 1.47% in 2016.
In addition, retailers face a significant fraud threat from automated botnet attacks. Only 56% of respondents were able to give an estimate of botnet activity. On average, those respondents said fraudulent botnets represented 7.1% of their monthly transactions, and 33% said botnet activity has grown since 2018.
Furthermore, the study reveals that retailers that conduct international transactions and allow m-commerce experience a large number of monthly fraud attempts. On average, mid/large-sized retailers with m-commerce and international commerce experienced 3,157 fraud attempts per month, including 1,830 prevented attempts and 1,327 successful attempts. Mid/large-sized e-commerce retailers with m-commerce and international commerce experienced 1,434 fraud attempts per month, including 767 prevented attempts and 667 successful attempts.
Small retailers with m-commerce and international commerce (the study did not divide them by traditional and pure-play) experienced an average of 1,593 fraud attempts per month, including 762 prevented attempts and 832 successful attempts.
For mid/large-sized retailers, Asia-Pacific represented 28% of international fraud costs, followed by Eastern Europe/Russia (19%), Western Europe (13%), Canada (12%), South/Latin America (10%), Middle East (10%), and other (8%). Asia-Pacific also represented a leading 28% of international fraud for small retailers, followed by Canada (22%), Eastern Europe/Russia (16%), other (13%), Western Europe (12%), and Africa (9%)
Other interesting findings from the study include:
• Average monthly fraud volume rose 133% for mid-to-large-sized retailers selling digital goods through the mobile channel. • Fraudulent purchases represent a much higher percentage of fraud incidents among mid-to-large (69%) and small (66%) pure-play e-commerce retailers than among small (53%) and mid-to-large (55%) traditional retailers.
The study included a comprehensive survey of 700 U.S. risk and fraud executives in retail and e-commerce businesses.