Why is the Suspected Fraud Rate in Retail Higher than Other Industries?

While the global suspected digital fraud rate was 5.3% for the first half of 2023, the retail industry saw double that with a suspected digital fraud rate of 10.6%, according to TransUnion’s latest Omnichannel Fraud report. The highest of all industries evaluated, this means that – of every 100 digital interactions seen by retailers supported by TransUnion’s device consortium – 10.6 of them were suspected to be fraudulent based on one or more risk factors. Between the first half of 2019 and the first half of 2023, global digital fraud attempts for retailers increased by a staggering 183%.

Why the dramatic increase?

Coming out of the rapid shift to digital during the pandemic, retailers are still tasked with protecting themselves from numerous types of fraud, including promotion abuse, return fraud, shipping fraud, account takeovers, payment fraud, and loyalty fraud – and this all shows in the suspected digital fraud rate. Of the many types of digital fraud that retailers encounter, promotion abuse was the top reported fraud type in the first half of 2023, and the number of digital interactions associated with account takeovers also increased.

Unlike other industries, retailers see high levels of both first- and third-party fraud. First-party fraud can manifest itself through genuine consumers who are either deceptive about their intentions, or who unintentionally make a mistake, whereas third-party fraud involves a fraudster who misrepresents who they are or uses another person’s details to open or takeover an account or facilitate a transaction. As first- and third-party fraud rates increase, so do chargeback rates, which have a detrimental effect on retailers’ bottom line due to the time and resources required to dispute them.

While retailers could consider implementing two-factor authentication for account management and transactions using a technique like one-time passcodes, many are hesitant to do so because of the concerns associated with added friction. According to PYMNTS, 55% of shoppers would quit a transaction mid-process due to checkout friction – an alarming statistic for retailers looking to increase sales and customer satisfaction.

Is there another way?

The good news is that retailers can better protect their business from fraudsters without adding unnecessary friction for good customers. Rather than utilizing overt fraud prevention strategies that require customer action, merchants can leverage Device Proofing, a powerful combination of layered insights into the reputation of the device being utilized, device-to-identity linkages, and user behavior. While the benefits of this strategy are immense, one of the greatest advantages is the limited impact to the customer: by running these capabilities in the background upon transaction or account creation, retailers can gain key insights into potential risk without unnecessary, added friction to the customer – unless potential risk warrants further step-up verification.

How Device Proofing works

Building on the network effect of TransUnion’s massive ecosystems of data, TruValidate Device Proofing helps reduce fraud losses by identifying the risk of the device and pinpointing device-to-identity linkages while analyzing the behavior of the user. And – since it can be used before a transaction or account creation takes place – it provides early signals of fraud risk, giving merchants the necessary insights to better stop digital fraud before a transaction or account creation completes. These early signals incorporate shared evidence from TransUnion’s global device consortium of over 10 billion devices, including common first-party frauds, such as friendly chargebacks, promotion abuse, and shipping fraud. By combining layered insights from device reputation alongside a broad range of signals to authenticate the connection between device and identity and an evaluation of user behavior during form-fills, Device Proofing gives merchants the tools they need to more effectively block fraudsters without negatively impacting trustworthy customers.

Take the next step

While suspected digital fraud attempts may be on the rise, valuable and effective tools are available to help protect merchants from the devastating effects of successful fraud attempts without impacting the customer experience for good customers. Take the next step. Learn more about TransUnion’s TruValidate Device Proofing, and how it has made a difference for TransUnion customer Poshmark.