E-commerce has experienced huge growth and continues to expand its share of overall retail sales. Global e-commerce is expected to rise 20.7% this year to reach $3.5 trillion and is poised to exceed $6.5 trillion by 2023. It’s a major retail success story, and it has changed the way we shop. Unfortunately, as e-commerce grows, so does fraud.
The latest LexisNexis “True Cost of Fraud” study reports that U.S. retail fraud attempts have tripled since 2017. And Javelin Strategy & Research says card-not-present fraud is 81% more likely than in-store, card-present fraud. As more and more consumers have taken their shopping online, so have the fraudsters.
Fraud is causing sellers to be too cautious
The shift from in-person to e-commerce fraud has major implications for merchants. When a merchant accepts a transaction where the credit card is not physically present (a card-not-present, or CNP, transaction), that merchant is liable if the transaction is fraudulent.
So, if a merchant accepts and fulfills an online or phone order and that order is later disputed by the legitimate cardholder, then the refund money comes out of the merchant’s account. The merchant has already fulfilled the order, so they now suffer the loss of the goods and the costs of fulfillment (e.g., labor and shipping costs). It’s a huge problem.
Merchants react by declining orders they suspect are fraudulent. While understandable, they often go too far. Their fear of fraud causes them to decline good orders along with the bad, sacrificing revenue and upsetting honest customers.