Omni-Channel Retailers’ Biggest Fear: Fraud

As more consumers engage with retailers through multiple channels — with an ever-increasing range of payment methods and devices — retailers are faced with added challenges, including heightened exposure to fraud risk and increased complexity of fraud management. And, according to a recent ACI Worldwide study on omni-channel fraud management, more than 50 percent of retailers are ill-prepared for the inevitable increase of fraud attempts.

“It is clear from our study that many retailers feel unprepared to face the fraud challenges of an omni-channel world,” said Mike Braatz, senior vice president, ACI Worldwide. “There is a need for strategic and organizational changes, and an integrated approach to creating a true omni-channel environment for payments and fraud management.”

Fifty-four percent of retailers in the U.S. and Europe still have to work on their fraud management solutions across all channels. The research reveals that omni-channel data aggregation, the increasing number of payment options, the demand for faster fulfilment and the rapidly changing nature of fraud all present significant challenges to retailers.

Omni-channel retail sales are predicted to reach $1.8 trillion in the U.S. by 2017, with sales in Europe predicted to hit €920 billion ($1.02 trillion), or 44 percent of total European sales, by 2018.

“We are seeing an increase in cross-channel fraud that highlights the importance of having a cohesive omni-channel fraud strategy touching all sales channels. The survey shows that 60 percent of merchants believe they know what they need to do to combat fraudulent activity, but far fewer believe they have the tools to enable them to do this successfully,” said Braatz. “The lack of adequate fraud management tools and skilled staff revealed in this survey are a real concern. Retailers need a combination of fraud rules and analytics that add speed and sophistication to fraud detection, and they need access to global fraud intelligence that can help them interpret and respond to fast changing patterns of fraud.”

The study also shows a mismatch between fraud trends and retailers’ abilities to tackle new forms of fraud. For example, Card Not Present (CNP) transactions worldwide are growing at an annual rate of 15 percent, and will reach more than 27 billion transactions by 2018, ACI estimates. By comparison, card-present (CP) transactions are expected to grow by just 4 percent during the same time period. However, less than half of retailers surveyed say they use real-time rules and neural models for the protection of their CNP channels, while almost two-thirds say they use such tools for their CP channels.

Apart from sophisticated tools and the shortage of adequately skilled staff, respondents also believe that lack of funding (60 percent) and executive sponsorship (63 percent) limit their ability to perform effective omni-channel fraud management.

According to a LexisNexis study, annual fraud costs in the U.S. reached $32 billion in 2014, a 38 percent increase over 2013, which has galvanized calls for more secure payments processing from both private companies and public officials. Fraudulent payments account for 0.68 percent of retail revenue, up from 0.51 percent in 2013, both due to yearly increases in retail sales as well as the greater impact of mobile payment software. On a similar line, prevention has also gotten more expensive at $3.08 per every dollar lost to fraud, up from $2.79 just a year before.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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