Report: Online Credit Card Fraud Up a Staggering 11%

In What's New, Industry News by Accessories Staff

USRFSurvey_packshot_awFort Lauderdale, FL–Fraudulent use of credit cards, the biggest area of online loss for many U.S. retailers, is up by 11% since last year, a leading industry survey revealed recently.

Launched last week at the NRF Loss Prevention Conference and Expo here, the U.S. Retail Fraud Survey 2014 has reported a substantial increase in online credit card fraud.

Published by Retail Knowledge and sponsored by intelligent cash handling experts Volumatic and payment experts Kount, the U.S. Retail Fraud Survey 2014, now in its second year, is the most extensive report into the systems, processes and strategies of 100 of top U.S. retailers.

The report shows that online sales account for an average of 6% of sales. In the next three years retailers are estimating to achieve 15% of sales to be made online. Considering this anticipated rise in online sales and the dramatic increase of online credit card fraud, the role of online fraud prevention will be even more important. Vice Presidents of Loss Prevention will need to be more involved in profit protection in all sales channels, not just stores.

Don Bush of Kount, one of the U.S. Retail Fraud Survey sponsors, commented on the latest online figures from the survey: “The good news is that the problem of online fraud is beginning to be taken more seriously. As this survey report will illustrate, spend on online fraud prevention rose by over 50% year-over-year as a percentage of sales compared with in-store fraud prevention which actually saw a decrease in spend.”

Moreover, Bush added: “It is not all good news though – fraud is still very prevalent and credit card fraud is still a big issue faced by retailers, detecting, preventing and managing fraud is a full time vocation and getting the people, processes and technology right to beat fraud is crucial.”

James Harris of Volumatic, the other U.S. Retail Fraud Survey sponsor, underlined the value of the Survey, saying: “I am confident that the outputs of this survey will help the loss prevention community benchmark themselves against their contemporaries and to identify opportunities to engage with their businesses, as well as each other, to win back some of the multi-billion dollar hole in profits that is being created through shrinkage.”

Key Findings

• Shrinkage levels average 1.27% of sales, an estimated $57 billion loss to the industry.

• The shrinkage rates vary by retail sector, from discount stores at 2.5% of sales to specialist non-food at 0.7% of sales.

• Opinion remains divided as to the best way to measure shrinkage–53% use cost price.

• Most retailers still treat store and online loss prevention separately. Typically the VP of Loss Prevention focuses on stores and online shrinkage is managed separately. However, employees, customers and fraudsters do not make this distinction.

• With the growth of multi-channel retailing, where transactions cross organizational boundaries, we anticipate the wider use of a cross-functional, holistic approach to loss prevention. Retailers expect online sales to increase from 6% currently to 15% of total business over the next three years. As that happens, we expect the adoption of an increasingly “joined up” philosophy to all loss prevention; store and online.

• The biggest area of store loss remains employee theft (38%), followed by cash theft (24%) and then administration and book keeping errors (21%).

• The biggest area of online loss remains, overwhelmingly, from the fraudulent use of credit cards (59%), followed by friendly fraud (16%).

• Reflecting on recent online fraud events, 37% of retailers identify analytics and monitoring as their biggest concern.

• Spend on store based and online fraud prevention is beginning to even up. Store spend continues to fall while online continues to increase. Store fraud prevention spend has fallen from 0.6% of sales last year to 0.5% this year. Meanwhile, online fraud prevention spend has increased from 0.2% of sales last year to 0.34% this year. This reflects the growing importance of online trading to retailers, reflective of the anticipated 15% of online sales as a percentage of total in three years.

• Return fraud is costing retailers an average of 0.25% of sales this year compared with an average of 0.4% last year.

• The size of loss prevention departments on average, each member of the

fraud prevention team is responsible for $103 million of sales.

• 61% of the average loss prevention team works in stores and 39% in headquarters.

• Discount stores have the highest store presence at 95% and theme parks have all their loss prevention team based at headquarters.

• Manned guards are used by 31% of all retailers, but never in all of their stores. The highest use of manned guards (9%) is used in less than 5% of stores and 45% of retailers do not use them in any of their stores.

There are some important changes to the Survey this year. Detailed results are now only available to those retailers who took part. And a new anonymous section has been introduced to aid the quality and availability of the most sensitive data. These changes will further help retailers to benchmark, plan for future developments and react appropriately to fraud in general.



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