The Rise In e-Commerce Is Driving An Increase In CNP Fraud

Thursday, October 14th, 2021

Ask any retailer, regardless of their number of years in operation, and they will all agree that fraud is that unwelcome guest that will be making a frequent appearance  throughout the life of the business. It is simply part of the package.

According to a study conducted by Juniper Research, the reality is that retailers are on the brink of losing $130 billion in digital CNP (Card-Not-Present) fraud between 2018 and 2023. This staggering amount is due to fraudsters employing increasingly more complex approaches to attack while retailers are still sluggish in adopting any new fraud prevention strategies. 

Juniper research author and principal analyst, Steffen Sorrell, in an interview with Information Security Media Group, had this to say: 

“Fraudsters are becoming a lot more complex in their approaches … and e-commerce retailers are not really prepared for what’s happening right now. On the one hand, you’ve got a large amount of organized crime, where fraudsters are using a lot of very complex techniques such as cross channel fraud. … On the other hand, the e-commerce merchants themselves are reluctant to spend quite high levels of revenue in preventing that fraud because they view fraud as something that is just part of doing business.”

As cybercriminals continue to develop their knowledge, they invariably seek ways to monetize their growing expertise. Meanwhile, retailers are simply unable to combat it. 

According to Juniper, the inevitable result is that the annual CNP fraud growth rate is set to hit 14 percent through the year 2023. 

Where Retailers Are Missing The Mark

The report also details where retailers fall short in their fraud prevention strategies. Merchants are still assessing fraud risk at “the point of transaction.” Analysis in behavioral monitoring or verifying the identity of the user to gauge fraud risk before the transaction takes place is surprisingly missing. 

There seems to be an industry-wide misconception about FDP or (Fraud Detection and Prevention). It is believed to be a “high-cost tool” that is only useful for preventing fraud

Research author, Steffen Sorrell, explains what the FDP’s full capabilities are:

“A layered FDP solution naturally helps directly preventing fraud, but it also offers major gains in terms of recovering potentially lost revenue through false positives. This is something about which retailers remain undereducated, and has allowed fraudsters to capitalize on relatively low FDP spend.”

Juniper does note, however, that digital payment solution providers are set to spend $9.6 billion annually on FDP solutions in 2023. The majority of the growth will be driven by payment service providers and financial institutions. This is largely due to their understanding of FDP’s benefits. They must also contend with challenges such as open banking systems and instant payment processes. 

Fighting Fraud: A Delicate Balancing Act

Global payments provider Vesta, conducted a 15-month research study demonstrating that between 10% to 13% of card-not-present (CNP) of online transactions could be fraudulent. 

When you factor in the annual e-commerce growth to be 32.4% in the US alone and 27.6% worldwide, this can easily translate into millions of dollars lost with the cost of chargebacks, fraud, the negative impact on the company’s reputation, and the loss of customers. 

Merchants also run the risk of declining too many of what is considered “legitimate transactions” in order to fight fraud, only to end up with substantial losses. 

Fighting Back

Although merchants are willing to do whatever they can to reduce fraud rates, what they are not willing to do is to implement more friction into the checkout process. 

However, in order to preserve a hassle-free user experience, there needs to be a clear message around security checks. The use of automated behavioral analytics by capitalizing on AI are key in staying in the game in this increasingly competitive e-Commerce market.  

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