For retailers already skating on razor-thin margins, a fraud event could be make-or-break.
Merchants globally pay billions to combat fraud, and it is only predicted to get costlier in 2023. Adding to the expense this year are the more sophisticated methods hackers and other fraudsters currently employ. Synthetic account fraud, for instance, is a newer form of identity theft in which bad actors open accounts using a combination of stolen and fabricated identities. An example could be using an actual Social Security number under a false name. Account takeover is another method of digital fraud in which passwords and usernames are stolen to compromise accounts.
A bit more “old school” is first-party misuse, such as credit card chargebacks. PYMNTS research found that 50% of merchants cite costs incurred from chargebacks as one of their biggest revenue drains, contributing to higher operating costs, fees and fines, and loss of customers, among other problems.
PYMNTS research shows that surveyed small to mid-sized businesses lose an average of 3.5% of their annual sales revenue to fraud and false declines.
For their part, financial institutions are innovating to meet the ever-growing need to combat fraud. Acquiring banks are especially interested in artificial intelligence (AI), with 60% citing AI as their most important technology for detecting fraudulent transactions.
Fortunately, consumers are also aware of these growing risks, with 83% of surveyed citing transaction security as highly important. They generally follow best practices for keeping online accounts and account credentials secure, using such protocols as multifactor authentication to log into their online accounts. Consumers have also become believers in new security technologies, with 58% believing biometric authentication methods are faster and more convenient than other login methods. Moreover, 55% of consumers say they trust biometrics more than other alternatives. However, even as consumers demand safer transactions from merchants and retailers, a convenient and frictionless experience trumps security.
Retailers may consider upping their fraud prevention game in the coming year – just as hackers and other bad actors prioritize committing it.