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U.S. Businesses Spend $2.66 to Combat Every Dollar of Fraud, According to LexisNexis Study

This year, every dollar of fraud to merchants and firms in the retail and online/mobile,…

  • September 27, 2017

This year, every dollar of fraud to merchants and firms in the retail and online/mobile, and financial services sectors is estimated to cost $2.66 on average, according to a new study from LexisNexis.

For organizations selling digital goods and / or primarily transacting through remote channels, the cost is estimated to be even higher, at $3.48 per dollar of fraud, on average.

Key to the report is the LexisNexis Fraud Multiplier, which estimates the total amount of loss a business incurs, based on chargebacks, fees, interest, merchandise replacement and redistribution.

“For every $1 of fraud, businesses incur on average $2.66 or roughly two and a half times the actual loss itself. This accounts for nearly two percent of these businesses’ annual revenues,” said Paul Bjerke, vice president, fraud and identity management strategy, LexisNexis Risk Solutions.

“While two percent may not sound significant, the impact can be tremendous when you’re talking about a multi-million dollar company. Businesses need to be aware of the issue and proactive measures they can take to protect their bottom lines,” Bjerke said.

Fraud Increases as Transactions Move Away from the Physical Point-of-Sale

Another finding in the report: organizations in the e-commerce and financial services industries generally experience a higher range of fraud costs as a percentage of annual revenues.

“As more transactions move away from the physical point-of-sale and to the digital and mobile spaces, businesses need to account and prepare for the various potential attack points of fraudsters,” said Kimberly Sutherland, senior director, fraud and identity management strategy, LexisNexis Risk Solutions. “

In their efforts to fight fraud, however, businesses should not overlook the importance of reducing friction in transactions to ensure a smooth end-customer experience.”

Mid-to-Large Businesses Struggle Most

Larger digital merchants and firms (those with $50 million or more in annual sales) tend to feel more pain with regard to fraud, with related costs as a percentage of revenues tending to be higher for these businesses.

While larger merchants and firms use an average of 5.5 to 6.4 fraud mitigation solutions compared to the average 2.2 to 3.4 employed by among smaller organizations, use of any one solution type, such as identity authentication, is modest.

The solution, according to LexisNexis, is to employ the right mix of anti-fraud options. Many small businesses struggle to cope with the expense. But even large businesses may not be using the optimal set of solutions.

“Despite larger merchants and firms generally employing twice as many anti-fraud solutions as smaller organizations, their fraud costs as a percentage of revenue are on par with or higher than smaller organizations across industry segments. And in most cases, they are also experiencing a higher cost for every $1 of fraud. This suggests they aren’t using the right combination of anti-fraud solutions,” said Bjerke.

One thing is for sure: these risks are only growing. The recent Eqifax breach – where as many as 200 million consumer accounts were stolen – is proof of this.

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