Chargebacks911 Analyzes Newly Released LexisNexis True Cost of Fraud 2015 Study

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The recently released LexisNexis True Cost of Fraud 2015 study reveals a staggering increase in fraud among merchants. Alarmingly, as this cost of fraud rises, Monica Eaton-Cardone of dispute mitigation and loss prevention firm Chargebacks911 notes that the increase of fraud protection processes has failed to rise along with it.

Monica Eaton-Cardone of Chargebacks911 comments on the recent LexisNexis study.

Utilizing technology where it exists will help drive down the costs of fraud by lessening the need for manual review.

According to the annual LexisNexis True Cost of Fraud 2015 study released on September 16, retail fraud revenue losses are up by a staggering 94% from 0.68% in 2014. (1) The survey of over 950 merchants revealed that retail fraud cost accounted for 1.32 percent of total revenue in 2015; international retailers and mobile commerce merchants were effected most, with international retailers experiencing 1.56% in revenue losses and mobile commerce merchants experiencing 1.68% in revenue losses. (2) Monica Eaton-Cardone, COO of leading dispute mitigation and loss prevention firm Chargebacks911, attributes this increase to a lack of sufficiently stringent fraud protection processes.

Combating or mitigating losses from fraud has been an enormous expense for merchants, extending far beyond the price merchants pay for loss of goods. The LexisNexis study itemized costs directly related to fraud and found that for every $100 of fraud, retailers were forced to spend $223. (2) On average, merchants spend $7,000 per year on fraud mitigation efforts, while larger merchants spend upward of $100,000. A large part of this cost included manual reviews of suspicious activity with 46% of potentially fraudulent transactions undergoing manual review. Per Vice President of Corporate Markets for LexisNexis Risk Solutions Dennis Becker, “Manual reviews are time-consuming and expensive, driving more costs into the business and causing customer friction, which can impact overall top-line revenue.” (1) Eaton-Cardone points out that the manual review process still takes place in nearly half of all merchants despite automated systems available to be employed for this same purpose.

Additionally, the study found a huge spike in debit card fraud, with merchants attributing 30% of fraud to debit card fraud in 2015 compared to 16% in 2014. This is likely due to fraudsters attempting to use stolen data before the arrival of EMV. (3) Eaton-Cardone touts EMV, also known as the “chip and pin” system, as the most secure method of payment. EMV utilizes a micro-chip to store sensitive information, rather than a magnetic stripe. Since EMV relies on the customer's past history to determine if the purchase is valid or not, the customer's buying patterns and spending habits are analyzed in about a millisecond in order to detect suspicious activity. “The reluctance of small to mid-size businesses to adopt this technology is alarming,” says Eaton-Cardone. “This does not bode well for the future of the fraud protection industry.”

The LexisNexis Fraud Multiplier, which calculates the total cost per dollar of fraud, dropped by almost 28% from $3.08 in 2014 to $2.23 in 2015. The survey notes that while the drop may appear to be good news, the surge in fraud through remote channels means that merchants were responsible for a larger portion of chargebacks. Per the survey, “This has the effect of driving down the multiplier cost as it increases the direct losses relative to the other fraud-related expenses.” (1)

Eaton-Cardone stresses the need for proactive protection among merchants to fight off fraud, especially with Black Friday approaching on November 27, with Cyber Monday to follow on November 30. “Black Friday and Cyber Monday are peak days for shopping, but they're also typically rife with fraud,” warns Eaton-Cardone.

Per Eaton-Cardone, there has been a rise in development of eCommerce and mCommerce technology; however, there has not been a concurrent rise in the development of anti-fraud technology. “Utilizing technology where it exists will help drive down the costs of fraud by lessening the need for manual review,” says Eaton-Cardone. “Many businesses still don't know how to fight against chargebacks and other forms of fraud in a healthy, cost-effective manner. A third-party mediator who is proficient in dealing with fraud can go a long way in protecting your bottom line.”

Chargebacks911 was founded by merchants noticing a need for a third party business to fill this gap. Eaton-Cardone found that fraud in the form of chargebacks was slowly chipping away at her business until it came crumbing down. The company now protects other merchants from suffering the same experience.

About Global Risk Technologies and Chargebacks911:

Global Risk Technologies is most known for its role in payment processing solutions that cater to each side of the value chain: Chargebacks911.com and eConsumerservices.com. The firm is headquartered in Tampa Bay, Florida, with offices in Ireland and Atlanta. They have approximately 350 employees worldwide and currently manage over 150MM in transactions each month, with clients located in the U.S. and Europe.

Chargebacks911 is a division of Global Risk Technologies, and was developed specifically for merchants to offer immediate aid through proprietary technology and provide the necessary function that gives merchants the freedom to focus on their core competency and optimize their in-house skill set. Chargebacks911 focuses on chargeback mitigation and risk management. They specialize in servicing Internet merchants and acquiring banks, offering dispute response solutions and deep analytics. Chargebacks911 works with their client base to help them keep dispute rates down and retain their ability to accept credit cards. For more information, visit http://www.chargebacks911.com.

(1)    Kuehner-Hebert, Katie. “Fraud Costing Retailers Bigger Chunk of Sales”; CFO; September 18, 2015. ww2.cfo.com/fraud/2015/09/fraud-costing-retailers-bigger-chunk-sales/

(2)    “Retail Fraud Revenue Losses Up 94 Percent from 2014”; Pymnts; September 17, 2015. pymnts.com/news/2015/retail-fraud-revenue-losses-up-94-percent-from-2014/#.Vfruxd9Viko

(3)    “Retailers Lose 94% More Revenue to Fraud than 2014 – LexisNexis”; FinExtra; September 18, 2015. finextra.com/news/announcement.aspx?pressreleaseid=61270

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