2021 Retail Fraud Stats Online Merchants Need to Know
By Arwen Heredia /
13 Oct 2021
Retailers are playing an old game on a new court. Online retail fraud mitigation may have similar goals (and consequences) to brick-and-mortar loss prevention, like protecting inventory and securing revenue. But unlike arming a physical location against theft, retail sites and apps need to protect their goods and the people buying them, while still meeting the scaling needs of an omnichannel business.
With the pandemic driving surges in digital retail traffic and transactions over the past eighteen months, fraudsters are attempting to steal more, and more often. Between 2020 and 2021, shoppers spent well over $4.4M online, and the retail fraud rate jumped by 50%. Many merchants were under-prepared for both the increase in growth and the uptick in account takeover, content and payment fraud, and chargeback disputes.
To better understand omnichannel retailers’ position in this disrupted digital landscape, we surveyed 700 retail fraud professionals across Canada, the United States, and the United Kingdom about the fraud they encounter and how it’s impacting business, from day-to-day operations to long-term strategic decisions.
Digital retail fraud is expanding and evolving
As digital business accelerates and adapts, so does the Fraud Economy. With optimized tactics and tools like automation to scale attacks, fraudsters are often able to outpace retailers online, particularly if those merchants are new to e-commerce. Nearly three-fourths of respondents in our survey (72%) report a notable increase in fraudulent activity since March 2020, and it tracks: digital orders increased significantly for around 80% of those surveyed, attempted ATO fraud in this vertical spiked by 20% YoY between 2020 and 2021 across the Sift global network, and the value of attempted fraudulent purchases increased by 69% during that same time period.
Respondents are encountering a diverse menu of attack types, too, reporting returns fraud (21%), fake account creation (18%), account takeover (16%), gift card fraud (14%), and synthetic identity fraud (14%) to be the most common. It’s even more daunting when you connect the percentages to cash: gift card scams, for example, cost merchants over $80M in 2020.
These snowballing threats have left retail risk experts in a difficult spot. Over 90% agree that security is absolutely critical, even if it negatively impacts customer or business growth—and that’s with over one-third of them (39%) dedicating valuable resources to manual review. Each instance of manual review takes an average of 1-4 minutes, and is necessary on over 70% of all transactions. But selling that same security-over-growth story to leadership isn’t easy, and pits the needs of customers against the goals of the business.
Without a solution in place that meets the needs of everyone invested, trust and safety teams are often stuck with static tools and technology to fight fraud, even as digital fraud evolves and attacks become more frequent.
Retail risk teams are on the line (and overwhelmed)
With so much of the retail industry newly reliant on seamless, hybrid customer experiences, merchants can feel forced to place the cart before the horse when it comes to growth versus security. Proactively preventing online fraud isn’t about adopting physical loss prevention practices for a digital space; rather, it’s about aligning overarching business decisions with flexible, fast, effective risk management practices that scale.
The immediate instinct to focus on increased supply and demand, more options and services, and additional team members in customer-facing roles doesn’t consider the fact that all growth comes with a side of risk—it’s how a merchant handles that risk that determines the size of expansion the business sees.
Yet over one-third of respondents say that currently, they manually review 50% or more of the risky signals that hit their apps and sites. On its own, that’s a significant hindrance to accurately assessing transactions—a couple of minutes quickly becomes hours as traffic rises. But worse, the teams responsible for fraud decisioning are largely under-resourced to do it. Respondents report that fraud prevention at retail orgs falls on every team from IT (67%), operations (53%), and customer service (47%) to business development (31%), UX (28%), finance (29%) sales & marketing (27%), and product development (25%), indicating a widespread lack of ownership.
This shifting accountability has real top- and bottom-line consequences for retailers, especially if they’re on the small side. Without a team dedicated to trust and safety, fraud is always an afterthought, and retailers are making long-term decisions based on an incomplete, inaccurate view of their potential risks and opportunities. Additionally, over half of consumers (56%) would abandon a brand compromised by fraud and seek out another provider, further dividing an already uneven playing field of big box retailers that can afford to take the occasional loss, and small businesses watching every transaction.
Fraudsters will continue to adapt ahead of the still-changing market, and growing retailers need to move beyond reactive fraud prevention to remain ahead. Check out our Mechanics of Retail Fraud infographic for more stats and insights.