Ranging from news articles to recent CEO interviews.
(Los Angeles, CA) November 25, 2015—According to a new survey from LexisNexis, retailers have lost 1.32% of their total revenue to fraud in 2015 compared with 0.68% for the comparable period in 2014—a 94% increase. In addition to the losses they are experiencing, efforts to stop fraudulent activity is also a major expense for merchants. The survey shows the average annual investment in fraud mitigation across all merchant verticals has been $7,000. However, larger merchants, which are more likely to serve customers through multiple channels (in-store, website, mobile), spent upwards of $100,000.
According to Cleveland Brown, CEO of Payscout, Inc., one key to reducing the cost of fraud risk is the implementation of effective automated transaction screening processes, a point emphasized by the LexisNexis report. While the report itemized costs directly related to fraud, it also tabulated the excess expenses retailers often incur when trying to combat or mitigate these losses. For every $100 of fraud, in fact, retailers were forced to spend $223. Suspicious activity constituted a large part of these costs, and according to the study, upwards of 46% of suspected fraudulent transactions were sent for manual review.
Manual reviews, indicated Brown, are time-consuming and expensive. This drives more costs into the business and causes customer friction, which can impact overall top-line revenue. To avoid both, Brown recommends setting up automated transaction screening criteria such as the fraud protection services offered by Payscout, which can be used for all operations, for selected markets, or to handle peak volume overflow.
Merchants will have all the more reason to be conscious of fraud now that the October 1 EMV (Europay, Mastercard, Visa) U.S. migration deadline set by Visa, MasterCard, American Express, and other major card networks has passed. The deadline prompted a liability shift aimed at forcing American merchants to adopt a more secure payment technology already ubiquitous in Europe and Canada. Retailers that have not upgraded their point-of-sale (POS) systems to read EMV microchips—the small, metallic rectangles already prevalent on the front of some American credit cards—will bear the financial responsibility for some fraudulent charges, which were routinely absorbed by card issuers prior to the deadline.
For a variety of reasons, including the inability of many POS systems to read the chips and the cost of upgrading, the migration progress has been slow. Only around 27% of American merchants were reported as ready to process EMV cards by October, according to a survey recently conducted by payments industry consulting firm The Strawhecker Group. This lag adds another layer onto the fraud burden merchants are already bearing.
The increased vulnerability to fraud charges arrives just as U.S. retailers prepare to launch into the busy holiday season—an essential time for the industry. According to the National Retail Federation, almost a fifth of annual retail sales—19.2%—take place during the holidays. This is also a period of heightened fraud; fraudulent activity is expected to be particularly heavy on Black Friday (November 27) and Cyber Monday (November 30), two very busy shopping days during which consumers spend multiple millions online.
The purpose of Payscout’s fraud protection program is to help retailers successfully confront these issues. By outsourcing fraud operations, merchants can significantly reduce the cost of manual review. In addition, Payscout Decision Manager includes performance metrics and monitoring services, plus a team of review experts that are available globally on a 24/7 basis. Payscout’s risk analyst team helps merchants:
“The current period is in many ways a golden age for the retail industry and for entrepreneurialism in general,” said Brown. “However, as retail opportunity grows, especially through online and mobile channels, fraudulent activity can be expected to increase as well. At Payscout, our mission is to support the entrepreneurial dream one transaction at a time. Therefore, we strive to provide merchants with the optimum degree of protection and fraud mitigation, while also expediting transactions to ensure the process runs as smoothly as possible.”