U.S., Canadian Retail Fraud Up 15%

A survey found an increase in the cost and volume of fraud to retailers.

August 27, 2021

Cybercrime and Fraud

ATLANTA—The pandemic changed consumer behaviors and fraudsters followed, taking advantage of merchants that accelerated mobile channel strategies, according to the 12th annual LexisNexis Risk Solutions True Cost of Fraud Study: Ecommerce and Retail 2021, U.S. and Canada Edition. The findings show that the cost and volume of fraud has risen sharply since last year's survey and in comparison to a separate pre-pandemic report.

The LexisNexis Fraud Multiplier projects that every $1 of fraud costs U.S. retail and e-commerce merchants $3.60, compared with $3.13 prior to the pandemic. This is a 15% increase from a pre-pandemic survey and a 7.1% bump since the 2020 survey conducted during the pandemic. The cost of fraud in Canada is up 5.2% since 2020, now at $3.02. The mobile channel plays a key role in this increase in both countries, as more consumers turned to their devices to shop during the pandemic.

Respondents indicate there has been increased use of mobile apps and contactless payment methods at the expense of mobile browsers. This change in behavior comes with a fraud cost shift from browsers to these alternative methods.

“Retailers should anticipate and prepare for increased fraud in the foreseeable future, even as we see a light at the end of the global pandemic tunnel,” said Kimberly White, senior director, fraud and identity, LexisNexis Risk Solutions.

The overall volume of fraud attacks has grown beyond pre- and early-pandemic periods, with businesses that offer online/mobile transactions experiencing the largest year-over-year increase. U.S. e-commerce merchants have been hit particularly hard, with merchants reporting a 140% increase in attacks since 2020, and their counterparts in Canada reporting a 52% increase. Successful attacks rose 52% and 45% in those markets, respectively.

Identity verification remains a top challenge for merchants and represents a larger share of fraud losses compared with previous years. A recent LexisNexis Cybercrime Report revealed that synthetic identities and other account-related fraud frequently match to breached digital identity data, such as email addresses and phone numbers. Merchants struggle to verify digital identity data and balance fraud detection with an exceptional customer experience. To that end, there is limited merchant use of solutions designed to support both issues.

U.S. retailers tend to use more fraud solutions than Canadian retailers, the study found. This includes passive/digital identity-based solutions that are effective at detecting sophisticated fraud while normalizing customer friction. The average U.S. retailer uses eight fraud prevention solutions, while the average Canadian retailer uses five.

“Organizations can no longer rely on manual processes and thin technologies to minimize fraud and reduce challenge rates, manual reviews and costs,” White said. “A solid solution includes implementing a robust fraud and security technology platform, which allows businesses to adapt to the changing digital environment while realizing strong fraud management and a risk-appropriate friction experience for genuine customers.”

To help retailers verify identity, this spring, NACS, along with Conexxus, its standards-setting partner, debuted TruAgeTM, a groundbreaking digital identification solution that enhances current age-verification systems at retail points of sale and protects user privacy. TruAgeTM is free to retailers, consumers and POS providers, and its relevant intellectual property will be placed in the public domain—removing significant barriers to adoption. More information about the TruAgeTM program and opportunities to participate is available at convenience.org/TruAge.

Register to attend the 2021 NACS Show October 5-8 at McCormick Place in Chicago and take advantage of the education sessions, such as Protecting Profits Through Loss Prevention on October 7.