Projected Price Tag for CNP Fraud Hits $130 Billion

Card-not-present fraud, which typically involves buying things online with stolen card data, will cost retailers about $130 billion between now and 2023, according to a new study from Juniper Research.

The findings highlight some of the stubborn challenges around fraud detection and prevention in the digital payments world, leaving many merchants struggling to catch online criminals, it suggested.

“The report found that eCommerce merchants remain, to a large extent, focused on assessing fraud risk at the point of transaction. As such, analysis in terms of session and behavioral monitoring, or validating the identity of a user to assess fraud risk before any transaction, is lacking,” Juniper Research said.

“As cybercriminals seek to monetize their knowledge to a wider, less tech-savvy audience, complex cross-channel fraud will become the ‘new normal,’ with retailers ill-prepared to fight it,” the company added.

Merchants aren’t always the only ones that suffer financially when fraud occurs. A recent study by LexisNexis Risk Solutions found that a dollar of fraud now costs credit unions and other financial services providers about $2.92 in fees, fines, interest, labor and other expenses.

There is movement in the credit union industry to develop more effective fraud detection and prevention tools. This past summer, for example, CO-OP Financial Services announced that it began a pilot test of its COOPER Fraud Analyzer system, and PSCU, a payments CUSO headquartered in St. Petersburg, Fla., announced an “exponential month-to-month increase” in fraud blocked by its new Linked Analysis system.

According to Juniper Research, however, the high cost of fraud detection and prevention tools may be part of the problem for many retailers. That could hamper investment, though Juniper Research projected that annual spending on fraud detection and prevention (FDP) will hit $9.6 billion by 2023.

Financial institutions and payment service providers rather than retailers will likely drive most of that spending, it noted.

“This is due to awareness of FDP benefits, as well as a requirement to deal with challenges such as open banking systems and instant payment mechanisms,” it said.

Juniper Research also recently projected that annual online payment fraud losses from online shopping, airline ticketing, and money transfer and banking services will hit $48 billion by 2023 – more than double the $22 billion it projected for 2018.

“Synthetic identity is currently the low-hanging fruit because, even though it takes time for fraudsters to establish, many of their targets are not set up to detect the behavioral giveaways that indicate this type of fraud. Fraud management providers have solutions on the market to combat this, but the industry as a whole is playing catch-up,” Juniper Research study author Steffen Sorrell noted.

There are some indications that many consumers will back merchants’ efforts to verify their identities online. A recent study by Zogby Analytics and identity technology company Mitek, for example, reported that about five out of six consumers said they would be more likely to use websites that have a “seal of approval” indicating they verify identities of all users. Seventy-two percent of the consumers in that study also said they had either been deceived by someone online or felt like it would soon happen to them.