Consumer Nation

For Every $100 in Fraud Losses Retailers Will Pay $310: Study

U.S. retailers who are victims of consumer fraud will pay more than three times the actual value of the fraudulent transaction, according to a study released Monday.

For every $100 dollars in fraudulent transactions the retailer will bear the cost of around $310, a study by LexisNexis Risk Solutions in conjunction with Javelin Strategy & Research showed.

This added cost is because of the “fraud multiplier factor,” the study reported.

The study defines the fraud multiplier factor as the additional costs retailers incur after the initial fraudulent transaction because of interests, fees and costs for replacing lost or stolen merchandise.

“The fraud multiplier factor really helps retailers understand their own exposure to fraud. Fraud is over $100 billion in losses in the U.S. for retail merchants,” said Jim Rice, director of Market Planning for Retail and E-Commerce Markets, LexisNexis Risk Solutions. “For retailers, it’s ‘how do I take that number so I can apply it to my own experience?’” he added.

The study predicts retailers will lose around $139 billion this year as a result of identity theft, lost or stolen merchandise and lost interest and fees from chargebacks.

Jim Rice

The research defines fraud as fraudulent and/or unauthorized transactions, bounced checks and lost or stolen merchandise.

As the holiday retail season approaches, Rice explains, retailers will have to continue to limit their exposure to fraud.

“I think retailers will continue to see increasing levels of fraud, especially in the holiday season,” said Rice. “Fraudsters will be diligent in their methods so retailers will have to be more diligent.”

The study aims to educate retailers about the threat of fraud and provide insight into fraud prevention.

This is the second study conducted for retail fraud by LexisNexis Risk Solutions and Javelin Strategy & Research. In 2009, the study showed $191 billion in estimated losses from fraud.

The study attributes improved economic conditions, increased fraud awareness, and fraud prevention solutions as major factors for reducing fraud losses this past year.

The research also found:

— Retailers accepting mobile payments saw the highest volume of fraudulent transactions.

— Fraud affects larger retailer merchants more prevalently

— Consumers who are victims of fraud tend to avoid certain merchants and/or spend less money at those retailers.

The study surveyed 1,006 merchants, financial institution executives and 5,000 consumers.

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