The Latest LexisNexis Report Finds the Cost of Fraud Is On The Rise Since the Pandemic Set in

The cost of fraud to merchants has risen since the onset of the Covid-19 pandemic. Each $1 in fraud costs retailers in the United States $3.60 in total expenses, compared to $3.13 pre-pandemic, according to LexisNexis Risk Solutions’ “True Cost of Fraud” study for e-commerce and retail merchants.

U.S. e-commerce merchants have been hit with the highest fraud costs, losing $3.90 for each dollar in fraud losses, compared to $3.13 pre-pandemic. Of those costs, 47% is related to replacing and or redistributing lost goods.

In addition to the overall rising cost of fraud, U.S. merchants are experiencing higher fraud costs in the mobile channel. In 2021, the cost to retailers from a fraudulent transaction made with a mobile device has risen 27%, compared to just 8% in 2020. E-commerce merchants are seeing a 39% increase in the cost of fraudulent transactions made with a mobile device, up from 5% in 2020. 

“This continues a trend based on fraud involving more mobile transactions, increased bot/cyberattacks and synthetic identities, which have been significantly heightened during the Covid-19 pandemic,” the report says.

As mobile devices are being used to initiate fraudulent transactions, the distribution of fraud by mobile-payment method among U.S. retail and e-commerce merchants has shifted from browsers to mobile apps and contactless forms, including text-to-pay/bill-to-mobile.

So far in 2021, mobile apps have accounted for 47% of fraud losses by mobile payment method for retailers, up from 38% in 2020, and 48% for e-commerce merchants, up from 36% in 2020. At the same time, text-to-pay and bill-to-mobile payments options are accounting for 28% of fraud losses by mobile-payment method for retailers, up from 12% in 2020, and 19% from e-commerce merchants, up from 3% in 2020.  

Not only is fraud costing merchants more, sellers are seeing a higher number of attempted and successful fraudulent transactions. In 2021, U.S. retailers have seen an average of 1,740 fraud attacks per month, up from 1,515 per month in 2020, a 15% increase. Of the total, slightly more than half, or 872, have been successful, a 20% increase from 2020. Successful monthly attacks in 2020 totaled 727 or slightly less than half the total monthly attacks.

Brick-and-mortar retailers that generate more than 30% of their transaction volume online are incurring 1,916 attacks per month. By comparison, retailers that generate less than 30% of their volume online experience 890 fraud attacks per month, on average.

The number of fraud attacks from international criminal rings is also on the rise. Attacks originating outside the U.S. represented 24% of total fraud attacks experienced by U.S retailers so far in 2021, compared to 13% in 2020. E-commerce merchants are seeing 29% of fraud attacks originate outside the U.S. so far in 2021, compared to 16% in 2020.

Among mid-to-large U.S. e-commerce merchants with 40% or more of their fraud costs coming from attacks originating outside the U.S., 40% are more likely to have difficulty distinguishing bots from legitimate customers and 30% are likely to have difficulty balancing fraud detection and customer friction with mobile transactions, according to the report.

LexisNexis Risk Solutions recommends merchants take a multilayered-solution approach to fraud detection, including integration of cybersecurity operations with fraud prevention, cybersecurity alerts, social-media intelligence, rules-based fraud-detection strategies, artificial intelligence and machine learning and crowdsourcing models.

“Single-point protection is no longer enough and results in single point of failure,” the report says. “A multilayered, strong authentication defense approach is suggested.”