Returns Fraud Hurting Online Retailers

Apr 08, 2013 2:52 PM  By

The National Retail Federation estimates that nearly $9 billion was lost by merchants in returns fraud in 2012. And according to a report from ThreatMetrix, online fraud resulted in about $3.5 billion in lost revenue in North America last year. Which makes it imperative, now more than ever, that retailers to step up and strengthen their cybersecurity.

According to the LexisNexis 2012 The Cost of Fraud study, retailers in 2011 were paying, on average, $2.30 per every $1 lost in fraud. In 2012, retailers paid $2.70 for every $1 lost. The study also found that for mobile retailers, the cost is even higher. In 2012, mobile merchants paid $2.83 for every $1 lost, compared to just $2 in 2011.

The increase, according to the study, is due to several factors, including the impact of lost and/or stolen merchandise on the company’s bottom line and post-fraud costs from customer attrition.

In its report, LexisNexis defined fraud as fraudulent/unauthorized transactions, fraudulent requests for a refund/returned or bounced checks, lost or stolen merchandise, and redistribution costs associated with redelivering purchased items.

When fraud happens at an ecommerce company, the costs are more than financial. If your security is breached in any fashion, customers will become wary about shopping with you and about sharing their personal information, such as credit card data and email addresses. Not only are you losing sales, but there goes your hand-raiser for marketing purposes.

In fact, according to recent statistics, one out of every three consumer fraud victims will change where they shop based on being a victim of fraud while shopping online.