A combination of factors is driving the high cost of fraud, including market events influencing the use of transaction channels/payment methods, the challenges that businesses face when assessing fraud with these transactions and the less-than-optimal approach that businesses take towards fraud detection, prevention and minimizing customer friction.
LexisNexis’ 2021 True Cost of Fraud APAC Study reveals a high cost per transaction in the region: $3.51 in Australia; $3.61 in Hong Kong, $3.87 in Japan and $3.84 in India – higher than the 2019 average of $3.40 for the region.
Key findings from the survey of 418 risk and fraud executives in retail, eCommerce, financial services and lending companies in the APAC region in 2021 include:
Financial institutions have higher costs
Given the heavy account-based nature of their business and the need to repay fraud losses to customer accounts, financial institutions often employ more internal and external labour for investigation, detection and recovery.
On average they spend $3.78 per transaction in Australia, $4.70 in Hong Kong, $4.46 in Japan and $4.76 in India.
The pandemic has presented the same challenges to the Australian, Hong Kong, Japanese and Indian markets such as shutdowns, fear of in-person contact and fear of transmission, though the disruption was not equal.
Each market saw a marked increase in the use of digital transactions and digital payment methods while cash and in-person payments dropped.
However, Hong Kong and India changed more fundamentally as these markets have traditionally had more in-person and cash-driven transactions. Businesses in both markets needed to adapt quickly and many were unprepared from a fraud detection standpoint.
Identity verification remains a top challenge
Common online and mobile channel challenges across markets included identity verification and determining transaction origination. The rise of synthetic identities was the most common source of identity verification issues.
Ecommerce merchants indicated that transaction origination is more commonly cited as a challenge due to their limited use of solutions to capture device ID and geolocation. The rise of mobile and digital wallets as well as other contactless payment methods has created difficulty for many eCommerce merchants when assessing fraud risk related to these channels.
Not using best practices in fraud detection/mitigation
The use of digital/passive identity authentication solutions and transaction risk assessment solutions was limited in the Australian and Hong Kong markets.
The number of organizations that integrated cybersecurity and/or digital customer experience with fraud operations was also limited in both markets. The eCommerce sector for the Hong Kong market is an outlier as it is nascent and still in the development stage.
This is primarily because Hong Kong, a highly developed territory, has enabled easy access to area businesses and in-person transactions have been much more common than those made online.
Cameron Church, director of fraud and identity, LexisNexis Risk Solutions, said, “As fraudsters become more sophisticated and their methods more complex, businesses need a robust fraud and security technology platform that helps them adapt to a changing environment, offering strong fraud management while maintaining a low-friction customer experience.”
A successful fraud detection and prevention approach involves an integration of technology, cybersecurity and digital experience programs to address unique risks from different transaction channels and payment methods.
He added that high fraud costs impact eCommerce merchants, retailers and financial institutions as they increase each year – even without the influence of COVID-19.
“With sophisticated threats on the rise, taking a multi-layered solution approach has proven to be the most effective way to fight fraud across various channels and transaction types, as well as performing a more complete assessment that combines physical and digital identity data analysis. Using different solutions to support fraud detection at various points throughout the customer journey will strengthen a firm’s overall defence,” continued Church.