LexisNexus calculates true cost of fraud


David Lesky


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LexisNexus calculates true cost of fraud

September 26, 2011

According to a study from Javelin Research and LexisNexis, merchants are paying a much higher cost that just the ticket price in a fraudulent transaction.

Even though there has been a drop in the frequency and price of fraud, the research indicates that merchants are actually incurring an average of $230 in costs for every $100 of fraudulent transactions. Rather than taking that news as a suggestion that companies should do more to mitigate fraud, the companies say that it's important to keep an eye on emerging fraud practices, because "fraudsters' techniques continue to evolve as retailers enter new markets through international and mobile channels."

"It is true there has been industry progress in fraud mitigation, however fraud continues to cost retail merchants over $100 billion annually and consumers are feeling the increased effects of fraud," stated Jim Rice, the director of market planning for retail and ecommerce markets for LexisNexis Risk Solutions. "While ecommerce, mobile payments and international commerce provide the retail industry with the most growth opportunities, they also present the greatest challenge to fraud prevention."

Many in the retail industry have seen fast growth in international, ecommerce and mobile sectors, the companies found, but unfortunately, those have also been the areas that pose the greatest risk of being targeted by hackers and criminals.

Merchants operating in the ecommerce and mobile spheres in particular are experiencing bigger-ticket fraudulent transactions, according to the study, and small companies and certain sectors also say they have been paying higher out-of-pocket expenses than the average retailer.

Finally, it seems that even though there have been fewer instances of fraudulent transactions occurring, those that are successful have been more severe and pulled in a greater dollar value, researchers found.

Consumers are also being affected by an increase of transactions that occur online and through mobile phones rather than in physical settings. Javelin and LexusNexus' research showed that the time it takes for consumers to fix a fraud problem and the amount they have to pay as a result also shot upward, and a separate study from the Ponemon Institute shows they are concerned about security.

Researched in partnership with ThreatMatrix, the study revealed that more than three-quarters of responding consumers harbor either "some" or "serious" concerns about their security and the threat of online fraud.