A recent fraud study conducted by Javelin Strategy & Research and LexisNexis confirmed what we already knew: identity fraud is on the rise, and so are the losses that online merchants face. What we learned from the report, however, is that the impact on retailers is much worse than originally thought.

Based on the study results released by LexisNexis, U.S. retailers incurred losses of $191 billion in 2008 due to identity theft, stolen merchandise and fees associated with chargebacks. Even more alarming is the fact that, between the three primary groups surveyed—merchants, financial institutions and consumers—the cost of fraud to retailers is almost 10 times greater than the losses absorbed by financial institutions and 20 times greater than the losses suffered by individual consumers.

“We weren’t completely surprised that merchants are paying more than half of the share of the cost of unauthorized transactions as compared to financial institutions. But we were very surprised that it was 90-10,” says James Van Dyke, founder and president of Javelin Strategy and Research.

The report also noted that nearly a third of shoppers decreased online purchases after becoming a victim of fraud. This means that not only do online merchants bare the direct cost of fraud losses, they also suffer from lost revenue due to damaged consumer trust in online security and fraud prevention procedures.

With trends clearly showing an increase in fraud against all varieties of merchants, one of the overwhelming proposals within the industry is for an increased cooperation between online businesses for the sake of gaining better insight into fraud tactics. “With the economic downturn and increasing sophistication in criminal fraud methods, it is crucial that merchants and financial institutions work together to mitigate fraud,” said Dennis Becker, vice president of Risk Solutions for LexisNexis.

Luckily, thanks to organizations like The Merchant Risk Council, sharing fraud information is a method that’s gaining wider acceptance within the industry. “The MRC is working with a wide variety of multi-channel and e-Commerce merchants with the stated mission of mitigating losses stemming from card-not-present fraud,” said Tom Donlea, MRC Executive Director. “Research programs such as this are valuable to the merchant community looking to benchmark their verification and authentication processes and fraud prevention tools that thwart such nefarious activity.”

Tags: Online Fraud, retail fraud

This entry was posted on Monday, February 1st, 2010 at 9:27 am and is filed under Online Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.