Multi-Channel Theft

Mobile commerce may open a new sales channel for retailers, but it will also open another way for thieves to cheat retailers, cautions a new study for LexisNexis by Javelin Strategy & Research.

“Merchants accepting purchases through the mobile device saw the highest volume of fraudulent transactions,” according to the 2010 LexisNexis True Cost of Fraud. “In a given month, these merchants are hit with 3,385 fraudulent transactions on average.”

The study found that many large e-commerce retailers have begun accepting or are planning to accept payments through mobile devices; retailers already accepting mobile payment report more successful fraudulent transactions than merchants in other channels. This, the report states, indicates “a strong need for merchants to establish effective solutions to prevent fraud when they expand into the mobile space.”

The true cost of fraud for retail merchants this year is forecast to be about $140 billion, even as there has been a greater awareness of specific fraud threats and the risks in each channel and modest improvement in the nation’s economic condition. In addition, the increased success of fraud prevention solutions, “especially among smaller merchants, helped decrease retail merchants’ fraud losses this year,” the report says.

Improved fraud prevention by smaller merchants is offset by the fact that large retailers experienced fraud rates “more than double the average annual fraud loss of their smaller counterparts.” One reason: The high transaction volume of larger retailers makes them a prime target for fraud.

Another immeasurable way fraud costs merchants is the impact on consumer attitudes. “More than one in three consumers who were victims of fraud avoid certain merchants,” the report notes. “One in four spends less money and almost one in three reports switching payment methods.”

An active approach
Javelin recommends merchants take an active approach to reduce their exposure to fraud and decrease losses. The report suggests five steps:

• Factor in the full financial impact of fraud. Accurately estimating losses allows retailers to determine the most effective solutions.

• Fully address fraud-mitigation tools in all channels. Fraud threats from the mobile channel have still not been fully identified.

• Consider using third-party solutions or outsourcing. It can save retailers “the headache of managing the fraud-mitigation process while still exploiting effective prevention measures.”

• Advise consumers of new fraud threats, inform them of ways their payment information is secured throughout the purchase process and instruct them to monitor account activity.

• Utilize education/best practice guidelines from industry resources, involving customer authentication, transaction verification and data security.

In a trend that was detected in last year’s study and continued into 2010, more than half the merchants polled said that “improved education and information” were the greatest needs for fighting fraud. These same merchants ranked industry standards and/or best practices as the second-greatest need in reducing fraud losses.