A Global Study into the True Cost of Online Fraud

Ensuring secure online transactions and mitigating the impact of fraud is critical to maintaining customers’ confidence and trust when purchasing products and services. However, as shown in research conducted by the Ponemon Institute, sponsored by PayPal, organizations continue to struggle with achieving the right balance between preventing failed transactions and having a secure payment process. Organizations represented in this research lose an average of $3.7 million per year due to fraudulent online transactions.

The impact of online fraud on revenue, cost, and budget

While most organizations are effective in preventing lost sales at the checkout, they struggle in balancing strong fraud protection with preferred payment methods. Customer sales are frequently lost due to transactions being declined.

• 59% of respondents say their organizations are very or highly effective in keeping customer data current and preventing lost sales at the checkout.
• 57% of respondents say their organizations are very or highly effective in having both strong online transaction fraud protection and positive authorization rates.

Key findings and challenges on reducing fraud risk in online transactions

The following findings provide guidance for reducing online fraud risks:

• The types of data most at risk in organizations are those used in online transactions. 62% of respondents say customer information and 58% of respondents say financial information is most at risk.
• A lack of in-house expertise and fraud assessments hinder the ability to fight online fraud.
• To minimize revenue losses, organizations should prioritize the protection of customer data and learn how to mitigate fraud.
• To avoid customer turnover, organizations’ online payment processes need to be considered secure and trustworthy.
• Organizations face the challenge of being able to quickly respond to online fraud incidents. On average, organizations represented in this research have 8.78 million online transactions annually and of these an average of 29% or 2.5 million are compromised annually.
• Digital transformation creates online fraud risks. Because of digital transformation risks, organizations should consider leveraging advanced technologies, such as automation and AI, to detect online fraud.
• Most organizations are using a team fully dedicated to detecting, responding, and containing online fraud and preventing chargebacks.
• The lack of collaboration between the fraud function and cybersecurity teams can be a barrier to minimizing online fraud.
• AI and machine learning are considered essential to detecting and mitigating fraud online.
• While most organizations are effective in preventing lost sales at the checkout, they struggle to balance strong fraud protection with preferred payment methods.
• Customer sales are frequently lost due to transactions being declined – organizations have lost an average of between $1.5 million and more than $10 million each year.

The use of fraud teams to prevent and detect online fraud

Most organizations are using a team fully dedicated to detecting, responding, and containing online fraud. 64% of respondents say their organizations have an online fraud team dedicated to its detection and containment, and leading the response.

Despite the use of fraud teams, only slightly more than half of respondents say their organizations are highly effective at reducing online fraud when accepting payments at checkout. Only 47% said they were highly effective at investigating fraud.

The lack of collaboration between fraud and cybersecurity teams can be a barrier to payment processing fraud prevention. One possible reason for the difficulty in achieving collaboration is that important decisions are divided between the fraud function and IT security instead of being cohesive.

Organizations’ approach to reducing chargeback fraud

An average of 679 chargeback frauds are experienced each month by organizations in the study, who then spend 31 hours investigating and responding to them.

Steps that can be taken to reduce chargeback fraud include:

• Have clear merchant descriptions.
• Have clear and flexible return policies.
• Respond to every dispute.
• Ensuring customer service resolves issues before they become disputes.
• Having fraud filters in place.
• Be prepared with evidence.
• Sending email confirmations and reminders.

Securing online transactions with automation and other technologies

AI and machine learning are the top technologies used to detect online fraud. The primary benefit of automated fraud protection is greater efficiency in the investigation of online fraud. 67% of respondents said their organizations use an automation layer to optimize fraud protection and authorization rates, with the result of:

• Better integration with threat intelligence sources.
• Finding stealthy threats that have evaded the standard security defenses.
• Minimizing the number of false declines.
• Reducing the time and effort required to investigate an alert.
• Automation of routine tasks.
• Discovering attacks before they do damage.

To understand the threat, to develop more efficient ways to fight fraud and learn how to protect customer data, read the full Cost of Online Fraud Report here.