TAMPA BAY, Fla. (PRWEB) December 04, 2017
According to the LexisNexis 2017 True Cost of Fraud Study, the retail industry is now losing 1.58% of revenue to fraud, with a fraud multiplier of $2.77. eCommerce merchants face even greater losses, with fraud accounting for 2.17% of revenue and every $1 in fraud amounting to $2.48 in total losses.(1) Chargebacks911, a leading dispute mitigation and loss prevention firm, says merchants should analyze their current fraud losses and weigh the respective merits and costs of maintaining an in-house fraud team or partnering with a third-party fraud specialist.
Based on the LexisNexis study findings, a $50 million eCommerce merchant is losing over $1 million to fraud each year; and when the $2.48 fraud multiplier is taken into account—including fees, interest, merchandise replacement and other costs—the losses total nearly $2.7 million. Even for smaller merchants with $10 million in annual revenues, total losses would exceed $500,000 per year. The LexisNexis study also revealed that 2 in 5 eCommerce transactions are likely to be fraudulent; of the 1,159 transactions eCommerce merchants average each month, 495 of them—or 42.7%—involve fraud attempts. Yet relatively few eCommerce merchants track fraud by transaction type: 41% track prevented fraud, 38% track successful fraud, while 50% do not track either type of fraud.(1)
“These latest study findings suggest that many eCommerce merchants have no idea how much money they’re losing to fraud,” noted Monica Eaton-Cardone, co-founder and Chief Operating Officer (COO) of Chargebacks911. “If online retailers are relying on a small in-house team to identify and prevent fraud, manually review orders, respond to chargebacks and monitor evolving fraud threats, it’s likely that something is slipping through the cracks. If they’re unable to keep up with the volume of flagged transactions, they may end up approving fraudulent orders, declining legitimate orders or taking a long time to process orders, which can negatively impact the customer experience. And if they’re not challenging the majority of chargebacks, merchants can suffer an even greater hit from friendly fraud.”
While some businesses may balk at the cost of fraud prevention, Eaton-Cardone says effective fraud solutions deliver a substantial return on investment; they not only help minimize losses, but they can also improve customer satisfaction. eCommerce merchants have several options; they can maintain an in-house fraud team, outsource to a third-party loss prevention firm or contract most of the work while keeping one or two fraud specialists on staff. A Deloitte analysis highlighted several cost considerations for in-house teams that should be evaluated when comparing against the fees of an external partner. In-house teams incur a resource cost for all fraud specialists on staff, as well as technology costs associated with analytical tools, transaction flagging, diagnostics and other automated functions. Companies should also account for training costs to help staff stay abreast of new and evolving fraud tactics.(2)
“When all of the relevant expenses are considered, most eCommerce merchants find it is much more cost-effective to partner with a third-party loss prevention firm than to maintain a fully in-house team—particularly in light of how quickly technology is changing and new fraud strategies are emerging,” explained Eaton-Cardone. “Another equally important consideration is the expertise and broad perspective that a third-party firm brings to the table, with the ability to leverage data from hundreds of different clients. This means fraudulent orders can be identified more quickly, while automated algorithms are continually updated to adapt to the changing fraud environment.”
Eaton-Cardone also emphasizes the need to proactively fight chargebacks, since Chargebacks911’s internal data shows that 60% to 80% of all chargebacks result from friendly fraud and another 20% to 40% are linked to preventable merchant error, while just 1% to 10% of chargebacks are cases of criminal fraud. For additional insights, refer to Chargebacks911’s article on Understanding the True Costs of Fraud, and download the free e-book with insider tips for preventing chargebacks.
Chargebacks911 is dedicated to educating and supporting eCommerce merchants in their efforts to increase profits, minimize chargebacks and fight fraud. To that end, Monica Eaton-Cardone and her team will be participating in a number of upcoming industry events, including ADSUM 2017 in Aspen and Affiliate Summit West in Las Vegas. For details on Chargebacks911’s comprehensive risk management solutions, informative articles and other merchant resources, visit https://chargebacks911.com.
About Global Risk Technologies and Chargebacks911:
Chargebacks911 is a division of Global Risk Technologies, which is internationally recognized as a leading provider of comprehensive risk management solutions to the payment processing industry. With offices in Europe and the United States, Global Risk Technologies manages over 200 million transactions worldwide each month. Chargebacks911 is headquartered in Tampa Bay, Florida, and specializes in chargeback mitigation and dynamic loss prevention. Founded by merchants in direct response to rising chargebacks and friendly fraud, Chargebacks911 combines insider expertise with proprietary technology and deep analytics to isolate threats, resolve disputes and maximize revenue. From small merchants to the nation’s largest retailers, today thousands of businesses rely on Chargebacks911’s scalable, customizable and fully turnkey solutions to achieve sustainable growth and guaranteed ROI. For more information, visit https://chargebacks911.com.
1. LexisNexis. 2017 LexisNexis True Cost of Fraud Study; October 2017; pages 11, 13, 14 and 18. solutions.lexisnexis.com/fraud.tcof.lp-65303.t-92611
2. Karthik, K.V.; Nishkam Ojha; and Amol Mhapankar. “Considerations for building in-house fraud risk management teams: Cost”; Deloitte “Perspectives” article; undated; accessed November 27, 2017. deloitte.com/in/en/pages/finance/articles/considerations-for-building-in-house-risk-management-teams.html