Fraud Is No Deterrent for Card-Not-Present (CNP) Shoppers

The parallel rise of fraud and spending doesn’t seem to add up upon first glance. As fraud increases throughout mobile and electronic commerce, some would think that spending throughout these channels would begin to decline. However, this is not the case.

For some consumers, they may simply be unaware of the risks involved in shopping online. For others, they may actually be participating in the fraud. There is a built-in convenience when shopping online, but just because something seems easier, doesn’t mean it’s secure.

Ecommerce and mcommerce enable consumers to purchase goods and services from the comfort of their own homes. However, it also enables criminals to do the same, with stolen information and less hoops to jump through.

According to The True Cost of Fraud 2015, a study conducted by LexisNexis, merchants lost more money to fraud as a portion of revenue in 2015 across all channels. A leap from 2014’s 0.68% to 1.32% in 2015 has left merchants discouraged and concerned about the successes of fraud mitigation. For consumers, however, 2015 has been a year of high spending and high chargeback rates.

For many industry experts, the spike in spending doesn’t come as a shock. Consumers are either unaware of the risks, or they are contributing to the fraud themselves through cyber-shoplifting, some say. And while these traits are not mutually exclusive, they are not unrelated. As spending rises, so does fraud of both the criminal and friendly varieties.

Criminal fraud is the credit card fraud we all know and hate; someone makes a purchase using the payment card or card information of someone else. Friendly fraud, however, is the credit card fraud we never saw coming. When a cardholder makes a CNP purchase, receives the good or service as expected, and then contacts the bank to file a chargeback, he or she is committing fraud. Friendly fraudsters claim that they have never received the product or simply never authorized the purchase in the first place—usually in the hopes of receiving a refund while keeping the product, also known as cyber-shoplifting.

With the EMV shift sweeping the country, both types of fraud are going to be increasing across the card-not-present marketplace. My concern is that multichannel merchants, distracted by the EMV shift, will not take ecommerce fraud as seriously as they should.

While reterminalization will be costly and is of immediate importance, the security of EMV will push fraud online, and the risk shouldn’t be underestimated. And these concerns are not unwarranted. LexisNexis has reported that large ecommerce merchants are losing an average of 1.39% of revenue to fraud annually, despite investing $115k on mitigation attempts. If ecommerce businesses decrease the annual spend on protection from fraud and chargebacks, the losses will inevitably increase.

Monica Eaton-Cardone is the Co-founder of Chargebacks911



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