Fraud Losses Average $11 Million Per Company Amid Increased Customer Misuse

Online retailers experienced substantial financial losses due to fraud, averaging nearly $11 million per company last year, with a notable surge in first-party fraud incidents. This information comes from a comprehensive survey conducted by Ravelin, a UK-based fraud prevention firm, involving 1,466 professionals in the fraud and payments sectors across retail, travel and hospitality, digital goods, and marketplaces.

The findings of the survey revealed that 77% of respondents reported an increase in fraud volume over the past year, particularly impacting marketplace platforms. Furthermore, 64% anticipate that fraud will continue to escalate in the coming year. Alarmingly, nearly half (47%) of the surveyed professionals indicated that shoppers are now more inclined to commit fraud.

Common tactics employed by fraudsters include chargeback fraud—often referred to as friendly fraud—where customers make legitimate purchases but later dispute the transaction with their bank, claiming it was unauthorized or that they did not receive the purchased goods or services. Additionally, refund and returns abuse has become prevalent, wherein customers exploit a merchant’s return policy, for example, by falsely claiming that an item was damaged.

The survey revealed that 61% of respondents rated card-not-present (CNP) fraud as the most financially damaging to their businesses. This was closely followed by chargeback fraud at 41% and refund abuse at 21%. Over half of the merchants surveyed (54%) noted an increase in refund abuse over the past year, with a similar percentage (55%) believing that such incidents will continue to rise in the next 12 months.

Despite recognizing that legitimate customers pose a threat comparable to that of professional fraudsters, many merchants hesitate to impose restrictions on first-party fraud due to fears of negatively impacting sales. Approximately two-thirds (66%) of merchants conveyed that maintaining customer loyalty and brand reputation outweighs the need to curb refund abuse. Furthermore, 76% expressed feeling pressured to issue refunds even when they suspect abuse.

Ravelin’s CEO, Martin Sweeney, emphasized the need for retailers to reconsider their stance on fraud. He remarked, “Too many retailers are happy to dismiss fraud as a cost of doing business. Downplaying fraud to protect the customer experience is a false dichotomy. Armed with the right tools and intelligence, retailers can build context about every single customer, accurately distinguishing fraudsters from legitimate shoppers. This enables them to address fraud effectively while ensuring that honest customers enjoy the high-quality online shopping experiences they expect.”

UK consumers have notably become a significant source of fraud, accounting for over 51% of all fraudulent activities reported. This represents a staggering 33% increase in just one year, surpassing the rates associated with scams (16%) and account takeovers (15%). On a global scale, first-party fraud remains the predominant fraud type, albeit with a lesser share of 36%. Industries such as Buy Now, Pay Later (BNPL) services and financial institutions are particularly vulnerable, with reporting of false information during loan applications categorically defined as first-party fraud.

Stephen Topliss, Vice President of Fraud and Identity at Ravelin, noted that changing scenarios in fraud attacks complicate prevention efforts, as detecting first-party fraud requires different approaches than those used for scams or account takeovers. Organizations must not reach a state of complacency; there were over three billion brute-force automated account takeover attacks flagged last year, illustrating that scams remain a persistent global issue. Consequently, it is critical for companies to adopt models that are adept at identifying the diverse forms of fraud that threaten their operations.