New Research Finds More Than 40% of eCommerce Digital Transformation Fails Due to Digital Fraud

Report from Kount and Javelin Research finds the top 3 fraud threats for retailers are stolen card fraud, account takeover, and fraudulent new accounts

Kount, the leader in AI-driven digital fraud prevention, released a new research report on digital innovation and emerging fraud, which found that the most innovative businesses are also the ones facing the greatest fraud threats. The report, conducted by Javelin Research, surveyed hundreds of respondents across the retail, restaurant, insurance, and financial industries and revealed more than 40% of businesses say fraud impedes their expansion into new digital channels and services. With the threat of emerging fraud and increasing expectations for a frictionless customer experience, businesses are challenged to balance revenue, expansion, and innovation priorities.

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The report found that 48% of consumers are more sensitive to anti-fraud measures that disrupt their online experience than they were a year ago. This means that retailers and restaurants have an increased imperative to balance fraud mitigation and customer experience. Yet, only 64% of organizations’ customers have confidence in the security of their digital channels. In this era of high customer expectations, increasing fraud risk, and competition to continuously innovate, businesses must address this critical interconnection.

“Opportunities for fraud increase as businesses adopt new features, such as voice ordering or mobile wallets. Businesses do this to engage their customers and provide an enhanced customer experience,” said Rich Stuppy, Chief Customer Officer at Kount. “Unfortunately, these businesses are not adopting the proper controls related to fraud. This report underscores the fact that digital innovation and the corresponding increases in revenue in these industries will never reach their full potential without integrating suitable fraud prevention initiatives.”

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Retailers face emerging fraud threats spurred by new digital innovations

While the retail industry has led the way in rolling out increasingly sophisticated digital innovation, they also face the biggest risk from fraud. This is in part because many retailers aren’t using the most sophisticated fraud controls in an effort to minimize friction in the customer experience. For example, 43% of retail merchants still authenticate users with only usernames and passwords, which can leave customer accounts vulnerable to takeover. As a result, retailers report that digital fraud (34%) and account takeover (10%) are their most significant fraud threats.

Restaurants underestimate fraud exposure when moving from a physical to a digital presence

Restaurants are no longer relegated to brick-and-mortar, highlighted by the fact that 70% of those surveyed report plans to invest in digital products and services within the next year. While many are focusing on new feature expansion and user experience (UX) refinement (48%), fraud management (27%) isn’t top of mind. What’s more, only 4% of restaurants ranked “managing digital fraud risk” as a top challenge for digital innovation, compared to 12% of all businesses.

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Fraud prevention strategies transcend industry, enabling all businesses to learn from each other.

The report provides in-depth recommendations that can help any restaurant or retail business combat digital fraud, including:

1. Bring fraud management and cybersecurity teams into early development stages, to prevent a scramble after an attack.
2. Identify the key fraud risks facing each part of your business now, and down the road.
3. Minimize friction for customers with well-informed, risk-based authentication.
4. Move away from one-time passwords.
5. Modernize authentication measures.

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