US Retailers Lose $100B Annually to ID Fraud

By November 10, 2009

U.S. retailers lose $191 billion in fraudulent transactions every year, with $100 billion of that due to identity fraud, according to a report by LexisNexis and Javelin Strategy & Research (PDF). E-commerce transactions were responsible for 54 percent of the fraud. Forty percent of of the large online retailers saw an increase last year; particularly hard hit were social industries like online gaming -- which has seen the largest increase in all major fraud types -- and social networks. One of the growing threats to retailers is friendly fraud, where a customer purchases a product, receives it, and then claims that it was not they who had made the purchase or that they received the wrong product, resulting in chargebacks to retailers.

Friendly fraud now accounts for one third of all online fraud. Vendors of digital goods are particularly vulnerable to this type of fraud, as their goods and services are more difficult to manage and track.

On average, a digital-goods retailer loses $1.5 million a year in fraud, compared to $72,000 for vendors of physical goods.

While credit and debit cards continue to the least secure payment options, fraud to online payment methods such as PayPal, BillMeLater and e-checks is also on the rise.

Consumer electronics is the sector with the highest monetary loss per fraudulent transaction ($1,224); hotels, travel and telecom have the highest amount of overall fraudulent transactions.

Identity fraud costs consumers $4.8 billion a year, while financial institutions lose $11 billion annually.

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