NEW YORK – A new study released by LexisNexis reports that U.S. merchants incur $191 billion in fraud losses each year.
The 2009 LexisNexis True Cost of Fraud Benchmark Study noted that merchants absorbed nearly 10 times the identity fraud cost incurred by financial institutions, with $100 billion in losses attributed to identity fraud and $91 billion the result of lost and stolen merchandise. The study reported that merchant losses amounted to more than 20 times the total value of consumer fraud losses, which were $4.8 billion in 2008.
The numbers validate the concerns of retailers, who continue to battle the credit card companies over fees and risks, among other issues.
“This totally debunks the card company claims that merchants benefit from card sales by being insulated from fraud costs and guaranteed payment,” said Jeff Lenard, NACS vice president of communications. “NACS recently surveyed members processing on its card program and found that fraud chargebacks — a tiny portion of the overall fraud picture — are increasing 19% compounded annually. Today, 86% of all chargebacks in our industry are fraud related and account for about 0.5% of the estimated $4.2 billion paid to Visa, MasterCard and their issuing banks last year.
“Interchange, transference of fraud risk and the cost of bandaging the antiquated technology of the card companies are all part of a strategy by the banks to maximize profits derived from the merchants; and from the consumers," Lenard said.
Among the study's findings:
- One in five merchants experienced an increase in identity fraud transactions.
- Friendly fraud — where a consumer alleges a chargeback after receiving the purchase, claiming it was never delivered — accounted for more than one-third of fraudulent transactions for online merchants.
- Merchants showed low satisfaction for fraud technology solutions.
- Retail merchants sought better standards to battle fraud costs.
“The impact of retail fraud is multifaceted and far-reaching, as this crime claims multiple victims,” said Dennis Becker, LexisNexis Risk Solutions vice president, corporate markets, adding, “We are seeing significant increases in identity fraud overall as well as increases in typical fraud categories such as chargebacks.
“With the economic downturn and increasing sophistication in criminal fraud methods, it is crucial that merchants and financial institutions work together to mitigate fraud.”
The study is available at risk.lexisnexis.com.