Retailers fail to face up to online fraud, survey shows

One in five retailers is not taking online fraud seriously enough, the latest Retail Fraud Survey from Martec International shows

One in five retailers is not taking online fraud seriously enough, the latest Retail Fraud Survey by retail business process firm Martec International shows.

Many smaller retailers are paying seven times more than they should in chargeback fees due to fraud, according to the study sponsored by anti-fraud firm Kount and cash handling systems firm Volumatic.

The study, which included 100 UK retailers, revealed that, when tackling online or multi-channel fraud, retailers typically do not have a single person responsible.

Instead, responsibility for tackling online threats is generally part of three or four people’s job descriptions.

This disjointed approach to fraud prevention resulted in 22% of respondents being unable to give a clear figure of how much their online fraud prevention costs were, the study found.

In the UK alone, e-commerce grew by 16% in 2012, but cyber crime grew 23%, forcing those retailers that are taking fraud seriously to divert more funds and resources to tackle the issues.

Mass merchants are spending 1.4% of sales on online fraud prevention, double the expenditure in 2012. Small format speciality retailers spend an average of 0.3% of annual sales, three times the 2012 figure.

However those that do not take the risks seriously enough, or do not have the funds to divert to the cause, are paying the price.

According to the study, online retailers worst affected are small format speciality retailers, which are typically paying seven times the average chargeback (consumer compensation) rate seen by the Merchant Risk Council.

Chargebacks were an average of 0.48% of sales across all sectors, but has high as 0.8% for small format speciality retailers. This sector was followed by: mass merchants and department stores (0.45%); large format speciality (0.31%); leisure and hospitality (0.29%); and home shopping (0.18%).

“Chargebacks are a major problem for online retailers and can impact and escalate in several ways,” said Don Bush, vice-president of marketing at Kount.

“These include fines from the bank or payment provider which can lead to even higher fines imposed by exceeding the chargeback limit and, in a worst case scenario, a complete loss of online payment options, resulting in the loss of a business.”

Bush said the survey has highlighted the problem and made it clear there remains work to be done for retailers to combat cyber crime or face going out of business.

The survey found that, as a result of fraud in the past year, respondents ranked as their top three concerns: analytics and monitoring (34%); fraud detection capabilities (28%); and operational capabilities (23%).

At present, only 7% of respondents outsource analytics, internal fraud management and external fraud management. A larger proportion of organisations polled outsource payment security (23%).

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