Retailers of digital goods are spending up to 20% of their operational budgets on fraud and chargeback management, according to a new survey from Javelin Strategy & Research. The findings of the report highlights the financial burden faced by merchants trying to manage it internally.
Monica Eaton-Cardone, CIO and co-founder of chargeback management firm Global Risk Technologies, commented on the report: “The need for investment in fraud prevention and fraud management is undisputed, but the statistics outlined in the report clearly show that in-house management of fraud is placing more of a financial burden on fraud management teams than it needs to.”
The cost of hiring and training personnel alone accounts for up to 30% of fraud and chargeback spending for merchants, and the effect on resource allocation is a serious cause for concern. More than half of digital good merchants reportedly believe that this is a necessary expenditure, although many worry that dedicating full-time staff diverts vital resources from investing in other revenue-generating departments such as sales and services, which are core to driving continued retail success.
Eaton-Cardone added: “All merchants will at some point deal with chargebacks, but the rise of friendly fraud means it is often the hidden problem of the merchant world. Friendly fraud can be used to deceptively receive the good or service ordered, without having to pay for the product – or innocently be committed due to the belief that gaining a refund from their bank is the same thing as contacting the merchant directly. Whether intentional or accidental, both situations render the merchant financially responsible and the lack of education surrounding this topic continues to spur its occurrence. The Javelin report underscores the fact that this issue is not going away, illustrating the financial cost of going it alone.”
A study from Lexis Nexis, The True Cost of Fraud Mobile Study, indicated that the costs associated with mobile-channel fraud are more than three times the initial losses and that fraudulent mobile transactions are the highest of any channel. The growing risk associated with mobile payments is a major concern for more than half of digital goods merchants and with this payment method becoming increasingly mainstream. This figure is likely to rise with the likes of Apple Pay and Google Wallet which will, in turn, necessitate an increase in fraud spend. Retailers of digital goods are preparing to dedicate additional operational budget to tackle the growing threat of fraud across mobile channels.
Following the recent liability shift for EuroPay, Mastercard and Visa (EMV) card security in the US, card-not-present (CNP) fraud rates are also expected to soar, which will again increase fraud-related chargebacks across the US, Europe and the UK. Seen as more vulnerable than traditional bricks and mortar retail outlets, fraudsters are migrating to global online retail channels for opportunities.
“Specialist third party providers with detailed knowledge of the chargeback process offer a far more cost effective and time efficient approach to chargeback management. It’s no surprise that almost two-thirds of respondents believe in outsourcing fraud mitigation and chargeback management. Combining education with best practice fraud prevention and customer service provides the strongest defence against CNP fraud-related activities in a growing online marketplace,” concluded Eaton-Cardone.
(A Retail Times’ sponsored article)