Fraud Grows at Faster Pace for International Merchants

cyber-fraud-magnifying-glass-300The percent of revenue lost to fraud is growing at a faster pace for U.S. merchants that sell across borders than those that just sell domestically, according to the findings of the 2014 LexisNexis True Cost of Fraud Study.

For international merchants, fraud loss as a percent of revenue grew significantly from 0.69% in 2013 to 1.21% in 2014 – which is nearly twice that of domestic-only merchants (0.65%).

According to the study, international merchants do believe that reducing fraud will increase sales (53%), though slightly less so than large ecommerce merchants (59%). However, given the high average number of attempted fraudulent transactions (1,288 attempted and 635 completed), more than half of these merchants feel that fraud is inevitable.

One challenge consistently reported by international merchants is customer identity verification. While it has significantly dropped this year (29% of international merchants consider it to be the top challenge in preventing fraud when selling internationally, compared to 39% last year), it remains among the top challenges for international merchants.

Virtual currency acceptance, which promises to play a nuanced role in fraud prevention, is growing quickly among international merchants; 11% accept this emerging payment method, compared to only 1% of domestic-only merchants.

On the one hand, 27% of international merchants accepting virtual currency report that fraud using this payment method has increased over the past 12 months, and only 12% have seen a decrease.

On the other hand, fraud using certain types of virtual currency may be less damaging to merchants. As certain virtual currencies, such as Bitcoin, present a reduced incentive for merchants to verify customer identity – transactions using Bitcoin cannot be reversed, so the merchant is not liable for chargebacks in these fraud cases.

According to the LexisNexis, a lawsuit in early 2012 by Tradehill against Dwolla with regards to chargebacks shows that trust among Bitcoin dealers and processors is low. Virtual currencies are still at a rudimentary stage as a payment method and require a lot of standardization and regulations for consumers to use them as a default payment method and for merchants to accept them without any unforeseen repercussions.

Among all merchants accepting virtual currencies, this payment method still constitutes an average of only 6% of the total volume of transactions. Thus it will be a long time before trends in virtual currency fraud become major drivers of overall fraud metrics, according to LexisNexis.

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