European merchants spent nearly €7 billion on fraud detection and prevention in 2021 alone – more than three times the value lost to fraud in the same year, estimate leading payments advisors CMSPI. These practices are unsustainable for the continent’s merchants, who are currently facing compound annual fraud growth of 1.5%1. As retailers’ margins are squeezed, fraud and its wider impacts are just another inflationary pressure that see merchants and good customers losing out.
The Rising Fraud Threat
Today, online payment fraud is more prevalent than ever. Throughout January alone, CMSPI estimates that merchants saw over 600 million chargebacks from sales made during the holiday season. Alongside an increase in absolute volumes, the types of fraud merchants face are rapidly shifting too, with threats such as refund fraud coming to the forefront for omnichannel retailers:
“As the digital and brick-and-mortar store environments merge, merchants are facing a new fraud landscape with new sets of challenges,” said Toby McFarlane, Head of Ecommerce for CMSPI. “Often merchants think they must choose one solution over another, but a targeted fraud strategy isn’t an either/or situation. It is important for merchants to have a sophisticated understanding of their payments profile to address their major threats and balance risk.”
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“As the digital and brick-and-mortar store environments merge, merchants are facing a new fraud landscape with new sets of challenges”
Good Customers Are Still Losing Out
The easiest way for a merchant to stamp out fraud entirely is to prevent all customers getting through the checkout – even good ones. Many merchants are effectively doing this already, implementing overly aggressive fraud rules that often turn legitimate customers away. CMSPI’s analysis predicts that global revenue losses from these ‘false declines’ could reach $230 billion in 2022, representing a 6% increase from last year. In Europe, these losses were estimated to be 11x greater than the cost of fraud in 2021, highlighting the risks of a strategy that de-prioritises the experience of good customers.
How Are Merchants Responding?
Approaching the fraud question can be highly complex, with many merchants caught between excessively strict fraud rules that turn legitimate customers away or boosting sales whilst making themselves vulnerable to attacks. These attacks damage not only their bottom line, but customer loyalty too.
To tackle each threat, it is crucial for merchants to strike a balance between fraud losses, fraud prevention costs, and lost sales. This balance looks different for each merchant’s unique fraud mix, and finding it means utilizing data-driven insights that often reveal inefficiencies a merchant (and their payments partners) didn’t expect. Every business is unique and, as the fraud landscape shifts, merchants need to find the right partners to fit their needs, keeping abreast of the latest tools and solutions to build a strategy fit for the long run.
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