Retailers are bearing the brunt: New report suggests what they can do to fight back



January 2010

By M.V. Greene - STORES.org



U.S. merchants are taking some hard punches from retail fraud. In 2008, they incurred losses of $191 billion industry-wide from identify theft, stolen merchandise and lost interest and fees associated with chargebacks, according to a report from LexisNexis Risk Solutions.



Addressing the problem requires aggressive action on the part of the three primary victims of retail fraud: merchants, financial institutions and consumers.



Some key findings of the 2009 LexisNexis True Cost of Fraud Benchmark Study include:



• Total merchant fraud losses are nearly 10 times those incurred by financial institutions.

• Merchant fraud losses are more than 20 times the cost incurred by consumers.

• One in five U.S. merchants experienced an increase in unauthorized transactions associated with identity fraud in 2008.

• Credit card transaction crimes continue to rise sharply, but alternative payments are starting to represent a troubling new source of losses for large merchants.

• Retail merchants need more education and improved industry standards to address the cost of fraud.



LexisNexis Risk Solutions developed the study with Javelin Strategy & Research to examine how U.S. retail fraud affects the interdependency of merchants, financial institutions and consumers across multiple sales channels, says Jim Rice, director of market planning, retail markets, for LexisNexis Risk Solutions.



Merchants absorbing burden




More than half of industry-wide fraud losses in 2008 came from unauthorized transactions and fees and the interest associated with chargebacks.Financial institutions bore about $11 billion in hard losses, and consumers $4.8 billion. The survey attributes the remaining $75 billion to retailers’ additional costs associated with lost and stolen merchandise.  The extent to which retail merchants are absorbing the costs associated with fraud relative to financial institutions and consumers is “striking,” says James Van Dyke, founder and president of Javelin Strategy & Research.

“We weren’t completely surprised that merchants are paying more than half of the share of the cost of unauthorized transactions as compared to financial institutions. But we were very surprised that it was 90-10.”



Identity fraud, defined as the misuse of personal information for financial gain, represented 52 percent of total merchant losses among fraud types, according to the survey, a clear indication that “identity fraud and the exposure of merchants to identity fraud is continuing to increase,” Rice says. “From a trend perspective it is an increasing issue for merchants and has been growing across the board for all varieties of merchants.”



Contributing to the identity fraud conundrum is a shift in the methods consumers use to pay for goods and services. While credit card crimes continue to rise — nearly half of fraudulent transactions for all merchants are linked to credit cards — consumers also are relying on alternative, or “card-not-present,” shopping methods, creating a new source of losses for merchants.



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Posted by John B. Frank Thursday, December 31, 2009

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