Voice of the Industry

Why do fraud levels vary by country?

Tuesday 11 October 2016 08:47 CET | Author Melisande Mual | Voice of the industry

Bernardo Lustosa, ClearSaleMerchants who wonder when online fraud will cease to be a problem need to understand the fraud triangle

Why is ecommerce fraud more prevalent in some countries than in others? Ecommerce merchants, law enforcement agents, and fraud protection providers wrestle with this question as they seek ways to make the online marketplace safer for merchants and legitimate customers. Decades of research into the behaviour of fraudsters and thieves have uncovered the interplay between individual circumstances, economic setting, and societal norms that lead to a rise in fraud. Merchants who wonder why risk varies by location or who wonder when, if ever, online fraud will cease to be a problem need to understand what’s called the “fraud triangle.”

The fraud triangle

The fraud triangle, developed by American criminologist Donald Cressey in the 1950s, is an enduring model for risk assessment and management. Each “side” of the fraud triangle represents one of the three factors that increase the likelihood of unethical and fraudulent behaviours in a given situation: pressure, opportunity, and rationalisation.

Pressure motivates the fraudster to act in response to financial or emotional forces. For example, the thief may have financial problems, such as debt or a costly addiction, or he may face pressure to deliver a steady stream of income for his family or partners in crime.

Opportunity arises when there are weak or nonexistent fraud controls. Fraudsters think they can act with impunity because nobody is monitoring their actions. In the case of ecommerce fraud, opportunity presents itself in the form of unprotected or underprotected merchants and weak law enforcement.

Rationalisation occurs when an individual or group feels justified in committing fraud. Most people prefer not to think of themselves as criminals, so they rationalise their behaviour to be somewhat congruent with their moral principles. That reasoning may be that they don’t make enough money, they have to provide for their families, or that corruption is so widespread that theirs doesn’t matter in the scheme of things.

We can use the fraud triangle model to compare countries based on a fraud scale.

As an example, we can compare the US and Brazil, the largest and second-largest ecommerce markets in the Americas, to see how fraud triangle factors work in each country.


The US and Brazil are both capitalist countries with consumer-driven economies, but the patterns of wealth distribution are very different. According to UN data ranking countries by income inequality, Brazil is the third-most unequal country in the Americas, while the US ranks ninth. This disparity means that a Brazilian earning minimum wage must work many more hours to afford a new smartphone than a minimum-wage earning American. Take, for example, a new iPhone 6 16GB. When comparing the price with the minimum wage, that phone represents just 52% of the minimum wage in the US, but is 3.3 times the monthly wages in Brazil. This means that a fraudster in Brazil would be able to compensate over 3 months of wages by stealing in iPhone, while one in the US would need to steal 6 iPhones to compensate the same amount. This type of income pressure, plus the instability of the economy, will certainly increase the economic pressure to commit fraud.


Apart from large-scale fraud perpetrated by organised crime groups, CNP fraud is investigated only rarely in Brazil. Lack of law-enforcement resources is part of the problem; the country’s police currently can investigate just ten percent of violent thefts, to say nothing of nonviolent online crimes. In markets where the resources to investigate or prosecute fraudsters are lacking, fraudsters see opportunity.


Fraudsters rationalise their crimes as having a valid reason (such as economic pressure) or as being a better of two alternative options. Card-not-present fraud is a nonviolent crime that generates losses for institutions, regardless of the country in which it occurs. However, fraudsters may have an easier time rationalizing CNP fraud in countries with higher demonstrated or perceived institutional corruption.

For the purposes of our comparison, it’s worth noting that Brazil fell last year in global anti-corruption rankings because of the Petrobras bribery scandal and others. About 40% of Brazil’s Congress members face corruption charges, but it’s unlikely that many will ever face trial. In such an environment, rationalising fraud against large businesses or government agencies is easier than in countries with less corruption.


None of this means that merchants should block transactions at the country level. In every country, there are legitimate customers whose business can help ecommerce merchants thrive, as well as nests of fraudsters who can derail a merchant’s business. A recent Experian study of CNP risk by US zip code, for example, found that the risk level varies widely within the country, illustrating the need for neighborhood-level risk assessment in place of geo-blocking by country.

Whatever methods fraudsters use to commit CNP fraud, the underlying behavioural model remains the same. Fraudsters commit fraud because they face pressure, find opportunities, and rationalise their behaviour. This means that the real keys to stopping fraud are in the hands of economic policymakers, law enforcement leaders, and politicians. By reducing income disparity, stepping up enforcement, and rooting out institutional corruption, these people can create a setting in which there’s less pressure to commit fraud, less likelihood of getting away with it, and less corruption to help rationalise it.

Until that time comes, merchants must understand how fraud-triangle elements vary by country and over time, and they must protect themselves with up-to-date, precise fraud protection to guard against theft while allowing for valid cross border ecommerce purchases.

About Bernardo Lustosa

Bernardo Lustosas passion for data-driven problem-solving drives his work as ClearSale’s Chief Operations Officer and his other professional contributions. He also works as a professor at São Paulo’s Fundação Instituto de Administração, one of the top-ranked universities worldwide for executive education, where he instructs MBA candidates in data mining for fraud management. Follow on twitter @ClearSaleUS.

About ClearSale

ClearSale is a fraud prevention company that protects a variety of market segments merchants against chargebacks, offering an end-to-end fraud detection solution that combines advanced technology and statistics resources with a passionate team of 500 in-house highly specialised fraud analysts, focusing on increasing revenues while decreasing fraud costs. ClearSale has been preventing fraud in the most complex and dynamic international ecommerce markets, providing merchants with simple decisions and peace of mind, so they can focus on their core business.

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Keywords: Bernardo Lustosa, ClearSale, fraud, ecommerce, fraudsters, thieves, US, Brazil, merchant, fraud triangle
Countries: World