LexisNexis Study says Retail Fraud Taking Toll; Retailers Investing in Protection?

According to an annual study by LexisNexis, called “True Cost of Fraud,” retailers are suffering from the costs of fraud. At the same time, eTail’s bi-annual spending report study, which was most recently conducted in August at eTail Boston, revealed that retailers are not planning to invest in fraud protection in the next year.

The study, which was conducted by Javelin Strategy & Research revealed that retailers incurred $2.70 in costs for every dollar in fraudulent transactions in 2012. The study used the company’s Fraud Multiplier technology, which calculates the “true cost” of fraud, incorporating charge backs for merchandise, fees and interest to financial institutions and payment processors, as well as any replacement, redistribution or restocking fees incurred.

The study also reveals that retailers who offer mobile payments, e-commerce and sell internationally are becoming greater targets for fraud. In addition, the study quantifies the impact that fraud has on customer loyalty.

Findings from the study show the cost of fraud is on the rise compared to last year. This year’s cost of $2.70 per $1.00 in merchandise is up $0.40 from last year’s level, and one of the areas where fraud has grown the most is the mobile sector. This year, mobile merchants paid $2.83 for every $1.00 lost compared to just $2.00 in 2011, an increase of more than 40 percent. The analysis in the study shows that criminals are shifting more attention to merchants that use a broader array of sales interaction methods, including browser, applications, text and evolving near-field communication methods.

The study also found:

· 39% of merchants believe that lower fraud rates can increase customer loyalty; 61% don’t connect fraud reduction to improved customer loyalty, BUT…

· 33% of consumers who fall victim to fraud avoid certain merchants, meaning customer confidence is critical in maintaining and improving reputation

The study was conducted through an online survey completed by a merchant panel comprised of more than 1,000 participants. The full report can be accessed here.

The question I have amid all this is: why do retailers seem to concede that this is not an area they plan to spend on in the coming year? Is it because of a general lack of concern about fraud, or is there just not enough budget to handle more investment in the area? Tell us your reasoning, we want to be enlightened!