Why Fraud is Growing, And What You Can Do About It
Few industries or investments grow at a year-over-year rate exceeding ten percent nowadays. But one area that – unfortunately – has had bright growth prospects is retail fraud. Which means that one of the most important things you can do to protect your bottom line is to take reasonable precautions to prevent it.
According to the 2016 LexisNexis® The True Cost of FraudSM Study, the total cost of fraud as a percentage of revenues has risen over 11% in the past year, from 1.32% to 1.47%. This breaks down to record numbers of average monthly fraud attempts and successes (442 and 206, respectively, across the merchants they surveyed), as well as a substantial jump in the average monthly value of these successful fraud transactions ($146 versus $113 in 2015). All told, merchants lose an average of $2.40 per dollar of fraud losses as a result of chargebacks, fees, and merchandise replacement. It is truly a “growth industry.”
A big part of the problem is tied in with the growth of mCommerce, or commerce transacted through mobile devices, along with the broader area of card-not-present (CNP) transactions. In the former case, the percentage of successful fraud transactions taking place over mobile channels has grown year-over-year from 26% to 35% for larger merchants according to Lexis-Nexis. New technology is often a weak link for fraudsters to exploit, and in this case, the massive growth of mobile channel adoption, in general, has often run ahead of a concomitant investment in fraud prevention strategies.
Technology itself can also be part of the problem – for example, iPhone mCommerce apps are not allowed to collect a device’s Universally Unique Identifiers (UUIDs) to track which actual device is being used. In general, newer channels tend to have less infrastructure and fewer processes developed to combat fraud, and people take advantage of this gap.
So what can you do to prevent being a victim of retail fraud yourself? Here are three best practices:
- Have a policy. Paying no attention to fraud makes you vulnerable as a retailer – and at the same time, over-reacting to individual fraud incidents can make it difficult for legitimate purchasers to complete transactions with you. Planning ahead with reasonable guidelines is the best strategy.
- Validate and geolocate mobile device data. According to a recent white paper report on preventing mCommerce fraud, checking the phone number against your customer records and checking the GPS location of the transaction can help filter out questionable transactions . When a number doesn’t match, or a transaction is taking place from an unfamiliar location – such as in developing countries – you can flag these transactions for rejection or further verification.
- Employ lead or order verification. No matter what sales channels you are using, real-time online services exist nowadays that can use multiple factors to assess order quality, while preserving customer experience.
Given the potential cost of fraud to your profit margin, it is generally a wise move to invest in a fraud prevention strategy. No one can eliminate retail fraud completely, but particularly as technology continues to grow, you can take steps to stay one step ahead of most of the bad guys. With the right strategy, both you and your customers can breathe easier as you grow your retail efforts across multiple channels.