About $11 Out of Every $100 in Digital Sales is Fraud

November 18, 2016

It should come as no surprise to you that online sales continue to trend up, but along with this comes the increased exposure to digital sales fraud specifically for card-not-present fraudulent activity.

According to Forter, a fraud protection company, fraudulent activity accounts for about $11 of every $100 in digital sales nowadays. Fraudsters are remaining flexible in fighting the industry’s effort to stop these criminal acts. In response to changes in the marketplace, some of these criminals have found ways around the new mitigation techniques.

A large part of this trend is due to the introduction of EMV, which is the chip that most credit cards now have. On one hand, the chip has been successful in mitigating point of sale fraud in the traditional brick and mortar stores. However, this has resulted in an upward trend for card-not-present issues for e-commerce merchants, resulting in an overall upward trend for digital sales fraud.

The hardest impacted segments of the market are the merchants who deliver digital products such as music, movies, and other on-demand content. This makes sense when you consider the nature of their business in which the consumer expects their product at the time of purchase. Digital good merchants do not have the luxury of time to mitigate fraud on those transactions. This results in a significant amount of chargebacks. A whitepaper published by Javelin, indicates that the amount of chargebacks that come from online transactions are almost triple that of the in-person transactions.

Not only do merchants have to deal with the losses directly related to the transactions impacted by these types of criminal activity, there is the indirect cost of managing and mitigating the fraudulent transactions. Based on Javelin’s whitepaper, fraudulent-activity costs e-commerce merchants 7.9% of their revenue. The effort required to reduce and manage these effects account for a whopping 74% of fraud-related costs.

One thing is for certain if e-commerce merchants want to remain profitable, combating fraud-related activities will continue to be at the forefront of their operations. Fortunately, there are companies that specialize in this very thing, giving merchants an alternative to solving for this in-house. This gives merchants the ability to focus on what they do best, sales.

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