New research has revealed that retailers, both online and off, are falling behind when it comes to payment security, with Card-Not-Present (CNP) fraud to cost the industry $130 billion in the next four years.
According to a study conducted by Juniper Research, e-commerce merchants are too busy focusing on “assessing fraud risk at the point of transaction”, which is resulting in a lack of adequate protection against financial losses from fraudulent shopping activity. CNP transactions are currently on the rise, with e-commerce and mobile shopping activities changing the way consumers purchase goods from retailers. As such, it’s believed that very few retailers are focusing on fraud prevention capabilities that monitor shopping sessions and behaviours and validate a users identity before a transaction is processed. As little as 12-months ago, Juniper’s projections had put the total loss to retailers from fraudulent activity at $71 billion by 2022, with new forecasts sitting at $130 billion by 2023. This represents a growing problem and pain point within the industry.
In its report, the research firm revealed that cybercriminals are looking to make cross-channel the new fraud. By 2023, it’s estimated that financial institutions and payment service providers will invest a whopping $9.6 billion in fraud detection and prevention capabilities, with actual retailers contributing very little of this expenditure.
There’s no denying that the future of payment security is in a constant state of evolution, with businesses now investing in artificial intelligence and machine learning technology to identify and prevent fraudulent activity. However, as Juniper Research has highlighted, payment providers and financial institutions like buy now, pay later industry players Openpay and Zip using technology to assess the validity of its users and sales before a transaction is made. Mastercard also announced updates to its payment security methods in late 2018, revealing its new digital commerce protection measures that included the likes of 3-D Secure, an additional layer of security for online credit card transactions.
In late 2018, a global e-commerce research report from Pitney Bowes revealed that payment security was among one of the biggest pain points for customers, with this new body of work from Juniper confirming that retailers are just as concerned as their customers are.
“A layered fraud detection and prevention (FDP) solution naturally helps directly preventing fraud, but it also offers major gains in terms of recovering potentially lost revenue through false positives. This is something about which retailers remain undereducated, and has allowed fraudsters to capitalise on relatively low FDP spend,” explained research author Steffen Sorrell.
Successful and unsuccessful fraud attempts have also reportedly risen in the last 12-months, with LexisNexis claiming that midsized to large e-commerce retailers were hit harder than smaller retailers in the last year.
For instance, larger retailers reported 1,525 fraud attempts per month in 2018, which was up 43 percent year-on-year. In comparison, smaller players only reported an average of 249 fraud attempts in 2018. However, this still represented an 11 percent increase in prevalence YOY. Of these, larger retailers were able to prevent 953, leaving 572 attempts successful, while 67 of the 249 attempts on small retailers were successful. With greater prevention techniques in place, it’s believed the rate of success for online fraudsters could be reduced.