U.S. retail fraud grew significantly during the past year for businesses of all sizes, with fraudsters adding small business targets, which typically utilize less anti-fraud solutions than mid-to-large sized merchants.
Data from the 10th annual True Cost of Fraud report for the retail sector found that overall fraud attempts doubled year-over-year and tripled since 2017. The LexisNexis Fraud Multiplier, which measures the cost for each dollar of fraud loss, found that merchants pay $3.13 per lost dollar on average, up from $2.94 last year, a 6.5-percent increase.

The number of businesses allowing mobile commerce has expanded beyond traditional mid-to-large in-store retailers to include small retailers selling digital goods (such as electronic gift cards, software and mobile apps) and mid-to-large retailers and e-commerce merchants selling physical goods. This, combined with increased international transactions and more automated botnet activity, serves to create a climate where fraud thrives.

According to the report, these trends make identity verification and balancing fraud detection with minimal customer friction increasingly difficult. Across retail and e-commerce mobile channels the greatest challenges include verifying customer identities, the inability to determine a transaction source and the failure to distinguish between human and malicious bots, the report notes.

"There currently exists a perfect storm of increased cross-border, digital and mobile fraud and executives are under pressure to deliver prevention solutions that stem escalating fraud losses," said Kimberly Sutherland, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. "To effectively fight fraud, it's crucial that all merchants understand that there is no one-size-fits-all solution. There's no doubt that those using a layered solution approach involving identity authentication, transaction verification, digital identity tools and behavioral biometrics are better prepared to fight fraud."

Key Findings from the Report

  • Less Secure Small Retailers Offer Digital Goods – While mid-to-large sized retailers and e-commerce merchants are more likely to offer digital goods, small retailers offering digital goods more than doubled year-over-year, from 11% to 26%, broadening the landscape for fraudsters.
  • Mobile Commerce – The average monthly fraud volume rose 133% for mid-to-large sized retailers selling digital goods through the mobile channel.
  • Synthetic Identity Fraud – E-commerce merchants who transact through a mobile browser or app believe that the rise of synthetic identities is their greatest challenge fighting fraud during digital goods sales transactions.