Fraud losses decline among retail merchants but still remain high

NEW YORK Retail merchants incurred more than $139 billion fraud losses during the past year, according to a new study released by LexisNexis Risk Solutions. While fraud stands at a more than $100 billion problem for retail, fraud losses did decline 25%, compared with 2009.

"While the total cost of fraud has gone down since last year, retailers still lose more than $3 for every $1 lost due to a fraudulent transaction, and online or mobile fraud is a growing threat," stated Jim Rice, director of market planning for retail and e-commerce markets for LexisNexis Risk Solutions.

The reduction in fraud losses may be attributed to a gradual improvement in economic conditions, greater awareness of fraud threats and increased success of effective fraud prevention solutions.

The second annual "LexisNexis True Cost of Fraud Study," conducted by Javelin Strategy & Research, examines how U.S. retail fraud affects merchants, financial institutions and consumers. The study was conducted by surveying a retail merchant panel comprised of 1,006 risk and fraud decision-makers and influencers. The study also draws on identity fraud victim data from a phone survey of more than 5,000 U.S. adults, including 828 fraud victims.

For every $100 in fraudulent transactions, retailers incurred a "true" cost of $310 in total losses, including costs associated with replacing lost or stolen merchandise. In addition, the study found that consumer victims of retail fraud incurred $5.5 billion in costs stemming from un-reimbursed losses, legal fees and other factors.

The study also found that merchants who accept mobile payments saw the highest volume of fraudulent transactions; meanwhile, nearly 4-in-10 merchants plan to accept mobile charges in the next 12 months.

Merchants with more than $50 million in annual revenue experienced more than double the average annual fraud loss of their smaller counterparts.

Furthermore, friendly fraud accounted for one-fifth of fraud affecting merchants. Friendly fraud is the term used to describe a fraud that occurs when a consumer buys an item online, receives it but claims they did not, and requests a refund or chargeback from the merchant or delivery of a duplicate item.

As for consumers, more than 1-in-3 consumers who were victims of fraud will avoid certain merchants, 1-in-4 reported they will spend less money and nearly 1-in-3 victims will switch payment methods.

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