Compared with merchants in other regions, European merchants are losing less revenue to payment fraud, and spending a lower percentage of their ecommerce revenues on managing it. These are just two of the findings in a recent report published by Cybersource, the Merchant Risk Council (MRC), and Verifi.
The Global Fraud and Payments Report 2022 provides insights into the state of ecommerce fraud and payments globally. It's based on the results of a survey conducted in November and December 2021, with over 1,000 fraud management and payment specialists representing merchants in Europe, Asia-Pacific, North America, and Latin America. Here, we highlight some key findings in five areas. What's the business impact of fraud?
For the second year running, fraud KPIs have risen slightly, with an estimated 3.6% of global revenue lost to payment fraud1. Only in Europe has that percentage slightly decreased since last year (see table), with the enforcement of PSD2 Secure Customer Authentication (SCA) a likely contributing factor. Nevertheless, merchants globally still need to maintain a robust fraud screening approach.
Source: 'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 9
Despite rising fraud KPIs, merchants still spend the same on payment fraud management. Globally, it's 10% of ecommerce revenues. European merchants spend on average 6%, the lowest percentage in all regions studied2. What types of fraud attacks are merchants experiencing?
The four most commonly experienced fraud types, which continue to affect around one-third of merchants globally3, remain the same as in 2021:
Phishing/ pharming/ whaling
Card testing
Identity theft
First-party misuse ('friendly fraud')
The first three have increased for European merchants4. This may be linked to SCA, as fraudsters try to obtain the one-time passcodes (OTPs) often used for authentication.
Globally, on average, merchants believe 16% of fraudulent disputes should be attributed to first-party misuse5. Merchants say that most disputed transactions arise from:
Cardholders trying to get free goods
Confusion about transaction descriptors
Card issuers incorrectly processing disputed transactions as fraud
How are merchants addressing ecommerce fraud?
There's been a shift in the top priority driving merchants’ strategic approaches to fraud management. Now more merchants prioritise reducing fraud and chargebacks or minimising fraud-related operational costs, while fewer focus on improving the customer experience.
This shift may be partly driven by rising costs and KPIs associated with ecommerce fraud. Alternatively, some merchants may feel they did enough over the past year to improve customer experience and can now prioritise other aspects of their fraud management efforts.
For Europe, the 2022 results show a more balanced approach to fraud screening. During the first year of SCA enforcement, merchants focused on ensuring they comply. This second year of SCA enforcement has seen more merchants consider using risk-based exemptions as a competitive advantage for their business6.
Merchants should continue with a multi-faceted approach to fraud screening and ensure all channels are covered. In Europe, for example, SCA enforcement has led to fraud migrating to channels and transaction types that are out of scope for SCA7.
The proportion of orders screened manually has remained consistent since 2021. Most merchants see a place for manual review in their future fraud strategy, but 60% want to reduce or eliminate their dependency on it. European merchants are the keenest to eliminate it: 19% plan to do so compared with 11% across other regions8. How are merchants being paid?
Most merchants accept payments via cards, digital wallets, bank transfers and mcommerce. The fastest growing payment methods are Buy Now, Pay Later (BNPL), m-commerce, digital wallets, and third-party payments (such as cryptocurrency)9. Improving the customer experience, reaching new customer segments, and providing access to new markets are the top drivers for adding new payment methods. In other words, merchants aim to better satisfy existing customers, and better target and attract new ones10.
At the same time, around 8 in 10 encourage customers to pay using merchant-preferred methods, mainly to help reduce payment fraud risk and payment processing costs11. How are merchants managing and optimising payments?
Most merchants focus on a series of performance indicators for payment management: payment success rate, revenue, and cost of payments; followed by authorisation, authentication, and loss rates12.
On average, merchants use two or three techniques to optimise payment authorisation. The most common are EMV® 3DS, intelligent payment routing, machine learning (to fine-tune fraud management), and automated retries for payments. Most merchants use third-party data in association with each one13.
In general, European merchants approach payment authorisation similarly to merchants in other regions; but EMV® 3DS has higher usage rate in Europe, doubtless because of SCA enforcement14.
The report shows that ecommerce merchants have made substantial progress in advancing their fraud and payment management approaches to attract and satisfy customers and protect their customers and their business. For more insights, download the report.
About Mark Strachan
Mark is the business owner for the EMEA Managed Risk portfolio at Cybersource and a fraud risk professional with over 14 years’ experience in the card payment and banking industry. His current role as EMEA Managed Risk Principal at Cybersource allows him to work closely with enterprise clients on strategies to reduce risk associated with fraudulent activity and optimise revenue.
About Cybersource
At Cybersource, we know payments. We helped kick start the ecommerce revolution in 1994 and haven’t looked back since. Through global reach, modern capabilities, and commerce insights, we create flexible, creative commerce solutions for everyday life—experiences that delight your customers and spur growth globally. All through the ease and simplicity of one digital platform to manage all your payment types, fraud strategies, and more. Knowing we are part of Visa and their security-obsessed standards, you can trust that your business is well taken care of—wherever it may go.
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 9
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 10
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 14
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 15
'The impact of new SCA regulations on the payment space,' Payment Expert, 2022
'Mind the gap: Addressing payment authentication risk in the contact centre,' Smartnumbers, 2021
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 11
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 22
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 23
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 24
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 29
'Global Fraud and Payments Report 2022,' Cybersource, MRC and Verifi, 2022, p. 30
'Increasing Fraud Losses Drive Merchants to 3DS,' CNP, 2022
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