Retail Fraud Continues to Increase in Canada Amid Pandemic: Executive Study

A survey of risk and fraud executives at ecommerce and retail companies in Canada and the United States reveals that fraud continues to increase and most acutely affects mid to large-sized merchants.

The survey by LexisNexis Risk Solutions, a data science company based in Alpharetta, Georgia, is the 11th edition and for the first time has included Canada.

MID TO LARGE-SIZED BUSINESSES ARE THE MOST AFFECTED BY RETAIL FRAUD

The 2020 True Cost of Fraud – E-commerce and Retail study said the result of increased fraud volumes translates into a 7.3 percent increase in the cost of fraud year-over-year and the LexisNexis Fraud Multiplier shows that every $1 lost to fraud now costs companies an additional $3.36 compared to $3.13 in 2019 and $2.40 in 2016. This is an increase of $0.96 over five years. U.S. costs are significantly higher than the cost that Canadian retailers face per $1 lost to fraud at $2.87.

“Retailers and ecommerce merchants should be prepared for increased fraud attacks and costs for the foreseeable future,” said Kimberly Sutherland, Vice President, Fraud & Identity Management Strategy, LexisNexis Risk Solutions. “It is unclear how the COVID-19 pandemic will shape the purchasing landscape over the next few years, although we do know that fraudsters will continue to shift tactics quickly in response. The most effective way for businesses to fight fraud and protect their consumers is by performing a more complete assessment, combining physical and digital identity data of those making purchases.

“High fraud costs impact ecommerce merchants and retailers as sophisticated threats increase. A multi-layered strategy can protect retailers and ecommerce merchants throughout each buyer experience. Every transaction channel and type carry unique risks. Using different solutions to support fraud detection at various points in the consumer journey will strengthen overall defence.”

Chris Schnieper, Director, Fraud & Identity, LexisNexis Risk Solutions, said that over time what has been highly consistent is this notion of fraud certainly increasing.

“When we look at organizations that use a risk-based, multi-layered approach that can help reduce what we call the fraud multiplier — that total cost of fraud. It can help reduce that relative to their cohort peers in the study that do not utilize those same types of (approaches),” he said.

Schnieper said what is extremely interesting right now because of the COVID-19 pandemic is that over the last number of years there’s been a definite increase in a digital-first type of strategy in a number of industries such as retail and financial services. It drives a high level of convenience for consumers.

“COVID really drove that model to accelerate,” he said.

“The more people you have online the more fraudsters are going to try and take advantage of that.”

Kate Davis Green, Director, Fraud & Identity, LexisNexis Risk Solutions, said the fraud multiplier cost includes, in addition to the dollar amount lost, things like fees, interest, merchandise replacement and shipping, and redistribution.

“We highly recommend that organizations take a multi-layered approach to combating fraud,” she said.

“We’re talking about layering different types of fraud solutions in a workflow so that these different solutions can kind of benefit from one another and capitalize on the strengths of these solutions to make sure that we’re fighting fraud and fraudsters in the right way but also using risk appropriate friction to ensure that those trusted consumers pass through seamlessly.”

Key Findings and Trends from the study include:

  • Successful Fraud Attacks Increase: The average volume of monthly fraud attacks increased nine percent for U.S. retailers year-over-year while the average number of successful monthly fraud attempts increased 43 percent — 48 percent for mid to large retailers and 27 percent for smaller retailers. Attack volumes were already trending upward prior to the shutdown as mobile and online channels traditionally have higher fraud rates. Some of this growth is due to increased transaction volume due to the temporary closing of brick-and-mortar retailers during the pandemic;

  • Shutdown Spurs Increase in Fraud Costs: A comparative analysis of those surveyed showed that average monthly fraud attack volumes were significantly higher for specific retail segments who responded to the survey during the shutdown. Mid to large general merchandise retailers selling physical and digital goods had on average 70 percent more fraud attempts per month than those surveyed prior to the shutdown in March 2020. Businesses that continued operations during the pandemic who had higher mobile purchase transactions with in-store pick up experienced more fraud volume and coinciding higher fraud costs since these retailers had to rely on store employees for identity authentication rather than solutions designed to detect mobile fraud; and

  • Retailers Struggle to Keep Pace with Fraudsters: Retailers are finding it difficult to distinguish legitimate customers from malicious bots while balancing fraud prevention with risk-appropriate customer friction. This becomes even more complicated when purchases involve third-party, non-bank payment providers where transaction speed and volume are high and transparency into complex payment chains and end-customer profiles is low. Mid to large retailers selling digital goods are more challenged detecting and preventing fraud within these payment types. 58 percent of retailers selling digital goods say differentiating synthetic identities is a top verification challenge. Businesses new to mobile commerce contend with these issues more than businesses with more established fraud and risk mitigation solutions.

Article Author

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He now works on his own as a freelance writer and consultant in communications and media relations/training.

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