There is a huge disconnect in online shopping fraud perception between retailers and consumers, according to fraud detection solutions provider Riskified.
A survey conducted on 4,000 customers and 400 retailers in the U.S., UK, France, and Germany found that fraud was perceived differently in the eyes of shoppers and retailers.
Nearly three-quarters of online shoppers felt retailers weren’t doing enough to prevent online fraud, while nearly half blamed merchants instead of the criminals.
Retailers are overconfident about stopping online shopping fraud but customers are skeptical
The report found that online fraud is keeping up with eCommerce growth. Ecommerce grew by 28% to $4.3% in 2020 and is expected to reach $6.4 trillion by 2024. The researchers noted that the growth of online commerce led to a rise in eCommerce fraud in volume and complexity. Nearly half (49%) of US respondents said they were victims of credit card fraud at least once in their lives, with 22% falling victims within the past year.
Surprisingly, Riskified found that more (40%) shoppers blamed the retailer than those (33%) blaming the fraudster. Nearly three-quarters (71%) of U.S. consumers believed the retailer could have done more to prevent fraud. Similarly, 39% of UK shoppers and 37% of French buyers said they would blame a merchant if their accounts were compromised.
More than half (55%) of the retailers believed in their ability to prevent online shopping fraud, with only over a third (34%) of consumers trusting their merchants’ abilities to stop eCommerce fraud. Nearly half (44%) believe retailers will find it harder to stop eCommerce fraud as criminals advance their skills.
The disconnect was, however, dependent on the region with U.S. and UK merchants being more confident compared to their counterparts in France and Germany.
Surprisingly, French buyers were overconfident about their merchants’ ability because French companies were barely doing anything to prevent fraud, with less than half (44%) applying any anti-fraud solutions.
Online shopping fraud was a factor for consumer confidence in online shopping. According to the report, two-thirds (66%) of online shoppers said they wouldn’t buy online again from the retailer where their account was compromised. A quarter (25%) of consumers deleted their online accounts after a breach.
The COVID-19 Pandemic has worsened the online shopping fraud issue. More than three-quarters or 82% of retailers said they witnessed increasing fraud attempts since the beginning of the pandemic. More than half (60%) of the merchants expect fraud attempts to increase in the next year.
The researchers noted that the impact of online shopping fraud was severe globally. The retailers said that online shopping fraud was hurting their bottom lines, with 26% of global retailers blaming the vice for hurting their profitability.
About half (44%) of U.S. merchants reportedly lost 5% or more of their annual revenues through online revenue fraud in 2020. Over a third of global retailers said they lost between 5% and 10% of their companies’ profitability.
Nearly half (46%) of the retailers indicated that promo abuse, account takeovers (43%), friendly fraud (41%), and credit card not present fraud (37%) had the most negative effect on their bottom lines.
Fraud prevention solutions are ineffective and usually stop legitimate transactions
The researchers found that merchants are using legacy, in-house fraud prevention solutions and manual processes in an attempt to prevent online shopping fraud. They noted that these fraud prevention solutions were outdated, expensive, and ineffective in distinguishing legitimate and fraudulent transactions.
Similarly, the fraud prevention policies adopted by payment gateways introduce friction in online shopping, causing false declines in fraud. For example, 10% to 15% of online orders were rejected by issuing banks, while 72% of declined transactions were placed by legitimate customers.
Peter Elmgren, Chief Revenue Officer at Riskified said that online shopping fraud presented a unique challenge for businesses trying to provide seamless and safe experiences for online shoppers.
“According to Juniper Research, merchants lost $17 billion to eCommerce fraud in 2020, and that number is expected to exceed $25 billion in just three years,” Elmgren said. “By continuously learning from our merchant network and feeding real-time data into our sophisticated machine learning platform, we’re able to help our merchant partners build trust and confidence in the online shopping experience.”
Source: CPO Magazine
