The Mobile Channel Is Driving Fraud Costs

The cost of fraud to U.S. merchants increased 4.2% in 2022, up from $3.60 to $3.75 for every dollar lost to fraud. That’s the latest from the 2022 edition of the LexisNexis Risk Solutions “True Cost of Fraud Study: Retail and Ecommerce” report released Tuesday. The metric had been $3.13 pre-pandemic. In Canada, the measure increased from $2.87 in 2021 to $3.19, an 11.1% increase since 2020.

Among the key findings—698 U.S. and 102 Canadian merchants were canvassed—are that bot attacks particularly affected U.S. retail and e-commerce merchants, with 40% of retailers and 28% of e-commerce merchants declaring an increase in bot attacks in the past 12 months. In Canada, 50% of retailers and 37% of e-commerce merchants reported the same attack volume.

These increases come as many merchants continue to focus on mobile, given consumer behavior. U.S. retail merchants reported that 20% of their transactions were mobile in 2022, down from 24% in 2021. Among U.S. e-commerce merchants, 31% of transactions were mobile, up from 18% in 2021.

Significantly, the average monthly volume of fraud attacks continues to grow. U.S. retailers prevented 853 monthly fraud attacks in 2022, down slightly from 868 in 2021. E-commerce merchants, however, experienced a spike to 677 from 480 attacks last year. Canadian retailers experienced 653 attacks in 2022, up from 500 last year, and Canadian e-commerce merchants suffered an incredible jump to 868 attacks from 405 in 2021.

“The mobile channel is driving the increase in fraud attacks,” the report said. “Year-over-year changes in average monthly attack volume is relatively unchanged for those that don’t adopt mobile commerce, while it is significantly up among those which do offer it. Retailers and e-commerce merchants indicate that fraudsters are targeting the mobile channel. This aligns with an increase in the cost of fraud attributed to mobile transactions, particularly among e-commerce merchants.”

These fraud losses are significantly driven by identity fraud, LexisNexis Risk Solutions says. Indeed, U.S. retailers cited new-account creation as the channel most susceptible to fraud—at 43%— but attributed only 31% of the fraud costs to this stage. Among U.S. e-commerce merchants, 38% cited new-account creation and attributed 31% of their fraud costs to this state.

“Many merchants focus on new-account creation and/or the point of purchase as being most susceptible to fraud–and findings show these journey points as being fraud targets. However, the percentage of fraud costs attributed to account logins/compromises is fairly similar to the amount attributed to the other journey points,” the report said.

Canadian retailers said in-person transactions accounted for 58% of their fraud and Canadian e-commerce merchants said new account creation—at 55%—was most susceptible.