Online merchants across the globe are facing an increasing threat of fraud, as a survey of CFOs at online merchants across ten countries has found that payments fraud remains the number one business risk, followed by friendly fraud, account takeover, and policy abuse. The survey, commissioned by fraud prevention platform Ravelin, has highlighted the rise of the ‘criminal customer’ as a significant source of profit erosion for businesses trading online.
Key Takeaways:
- A survey of CFOs at online merchants across 10 countries finds fraud is on the increase across the board in areas including online payment fraud, account takeover, returns and refunds abuse, and promotions abuse.
- The survey finds that payments fraud remains the number one business risk for respondents, followed by friendly fraud, account takeover, and policy abuse.
- CFOs and CROs surveyed say the rise of the criminal customer and of professional organised fraudsters has increased quite dramatically over the last 12 months.
The rise of the ‘criminal customer’
Over a third of finance leaders describe first-party frauds including “friendly fraud”, returns, and promotions abuse as the number one risk factor facing their business. The high levels of “friendly fraud”, promotions, and policy abuse, possibly accentuated by the cost of living crisis, mark the rise of the “criminal customer”. The survey finds that merchants’ own customers are almost as likely to commit fraud as organised criminals.
The trend seems particularly pronounced among younger age groups. A separate study by fraud agency CIFAS found one in 13 people admitted to involvement in some form of first-party fraud – rising to one in seven among digitally-savvy 16-34 year olds.
Novel forms of payment amplify dispute resolution issues for merchants
The data also highlights the challenges of fraud relating to buy now pay later (BNPL) schemes and other novel forms of payment. While debit and credit cards remain the most common vectors for card fraud, they are the easiest for merchants to successfully challenge in fraud disputes. On the other hand, methods such as Apple Pay, Google Pay, and BNPL schemes like Klarna are more likely to represent a headache for online merchants regarding dispute resolution. Just five percent of respondents agree they have had success challenging BNPL payment disputes.
Increasingly complex fraud landscape
The CFOs and CROs surveyed say the rise of the criminal customer and of professional organised fraudsters has increased quite dramatically over the last 12 months. Fifty-seven percent of CFOs polled agreed they are seeing increased evidence of sophisticated ‘fraud as a service’. These schemes involve organised groups buying items using stolen card details, reselling them to customers who are often unaware of their involvement in criminal activity.
As a result, finance leaders overwhelmingly expect their fraud teams to grow over the coming months – with a third of respondents agreeing their teams could grow by 20 percent or more. Chief Financial Officers and Chief Risk Officers now have to navigate an increasingly complex fraud landscape.
Ravelin CEO Martin Sweeney, said: “CFOs at online businesses, who have overall responsibility for fraud, tell us fraud from organised criminals remains a perpetual thorn in their side. But fraud by their own customers runs close behind. They recognise the vast majority of internet shoppers are scrupulously honest but recognise they need to be increasingly vigilant for those who are not.”
Conclusion
The rise of the ‘criminal customer’ is creating a new headache for online merchants who are already battling organised and professional fraudsters. While debit and credit cards remain the most common vectors for card fraud, they are the easiest for merchants to successfully challenge in fraud disputes. However, new forms of payment, such as BNPL schemes, pose a significant challenge for merchants regarding dispute resolution. As the fraud landscape becomes more complex, CFOs and CROs must navigate this minefield to ensure the future success and profitability of their businesses. Ravelin’s report highlights the need for CFOs to get on the front foot managing fraud by using automation to nip fraudulent transactions in the bud, while freeing up their expert human investigators to help minimise profit erosion, inform product development, and help grow the business.
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