B2B Payments

Vesta Corporation Shows Innovation A Hidden Victim Of Fraud

The threat cybersecurity holds over corporations today is massive. From email scams to malware, businesses have to keep their guard up or risk losing big bucks to cybercriminals.

There’s another way, though, in which the fear of fraud bears down on the enterprise.

A new report from Vesta Corporation finds fraud positions itself in the way of innovation and growth, even compliance. The company recently published a new eBook, Managing The Risk Of Fraud: The View From Corporate Finance, in which Vesta and CFO Research surveyed 155 senior-level finance executives in the U.S. to understand how payments fraud is limiting corporates’ path to success.

The majority of CFOs surveyed (and 62 percent of all execs surveyed) told Vesta and CFO Research that their experience with fraud has increased since the introduction of EMV chip cards, displaying both an increase in the number of and value of credit card chargebacks. Nearly two-thirds surveyed (and 62 percent of CFOs, specifically) said the same about chargebacks related to card-not-present transactions.

Citing Nielsen Report statistics, Vesta noted $16.3 billion in fraud losses incurred by retailers in 2016 alone, a figure representing 5.7 cents per every $100 transacted. Separate analysis by LexisNexis Risk Solutions cited in the report found fraud is 1.58 percent of total revenues, a 7.5 percent increase from 2016.

Already, companies are throwing resources at anti-fraud efforts: According to the report, survey respondents have as many as six separate internal departments that are related, in some way, to anti-fraud efforts, including fraud operations, payment processing, PCI compliance, risk analytics, chargeback management and order review.

The migration to EMV chip cards has introduced new points of friction for companies looking to mitigate fraud, the data suggests. With that shift, companies today are being forced to reevaluate their approach to fraud mitigation, with most saying they expect their companies’ fraud detection and assessment strategies to change in the coming two years — a figure that increases for professionals whose organizations today depend only on internal resources to protect against fraud.

“Such broad dissatisfaction suggests that companies are looking for an approach that’s a sharp departure from how they’ve traditionally been managing fraud,” the report concluding. “Depending on their business model and product mix, executives may feel trapped within their current thinking — even as they grow increasingly aware that a ‘more of the same’ strategy isn’t a viable approach for a landscape of increasing risk.”

But as businesses reevaluate how they manage risk, there is another burden they must also deal with: A reexamination of risk strategy, plus the burden of dealing with rising risk levels, means executives can’t focus on more strategic initiatives.

“As merchants have upgraded in-store payment security measures, fraudsters have flocked to CNP channels — online, mobile and elsewhere — with stolen payment credentials and seriously harmed merchants’ growth potential,” Tom Byrnes, Vesta chief marketing officer, said in a statement announcing the report.

That impact on growth plans is concerning, Byrnes added, who said that fraud risks are preventing these executives from directing their attention inwards for their companies to innovate.

A third of CFOs told researchers that fraud risk has “interfered” with internal efforts on product and services development and in some cases has forced the company to change its business model. Even more (36 percent of CFOs and 43 percent of executives overall) said fraud risks have made an impact on revenue projections or on how budgets are allocated. This, Vesta said, is the true “hidden cost of fraud.”

“CFOs have no choice but to engage in this battle, and the survey findings confirm that a majority of companies responding are ill-prepared for a sustained struggle against fraudsters,” the report concluded. “The sooner that companies look beyond existing in-house systems to combat fraud, the better chance they have of establishing a stronghold against inefficiency and revenue loss.”

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Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The September 2019 AML/KYC Tracker Report provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.

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