Anti-Fraud Costs Add up Fast, But Are Unknown to Most Merchants, Survey Finds

Fraud-prevention efforts typically intensify during the holiday-shopping season, but many marketers don’t know what those efforts cost them, finds a survey from 41^st Parameter, a data-technology company owned by Experian plc.

In a survey of 250 marketers, 60% said they were unsure about the cost of fraud prevention to their organization. When measured by size of the business, 70% of small business respondents, 67% of large businesses, and 50% of mid-size businesses said they were unsure of the cost.

Much of the cost of stopping fraud is tied to unnecessary transaction declines. With 30% of large organizations spending more than $1,000 to acquire a customer, fraud-prevention efforts that, for example, may result in declined card-not-present transactions for e-commerce merchants, may add to these acquisition costs, especially if a consumer decides not to return, the report says.

“While many of these transactions are blocked for valid reasons, nearly 3% or $1.2 billion are not for valid reasons,” 41^st Parameter says. “During the holiday season, with increased revenue expectations, that 3% can be especially costly. It costs a great deal to attract and retain customers who have increasing lifetime value, and a significant portion of declines are likely unnecessary and impact good customers.”

While many merchants outsource their payment fraud-detection efforts, they should ensure their marketing managers understand what these providers are doing and the direction they’ve been given, the report says.