According to a new study, “The Real Cost of Online Fraud,” conducted by the Ponemon Institute and sponsored by PayPal, organizations have been seriously affected in the ability to protect online financial transactions against fraud in the last year. In its survey of 632 individuals familiar with their organizations’ efforts to prevent fraud and active in fraud investigation, mitigation and/or cyber activities, only 34 percent rated the effectiveness of their organizations as high or very high — a fall from 45 percent when asked prior to COVID-19.
“The reality is that for many retailers, they are not in the business of managing fraud and chargebacks,” said Rahul Pangam, vice president of risk strategy at PayPal. “However, consumers naturally expect that when they make a purchase, their financial and payment information will be protected. If this trust is broken, a retailer can lose a customer for life. With the increasing competition among retailers vying for market share, that’s not a risk they have the luxury of accepting.”
Notably, the organizations represented in the research study reported losing an average of $4.5 million per year due to online fraudulent transactions. Still, only about half (51 percent) said their organizations are “prioritizing protecting online financial transactions.”
“In the last year, we’ve seen exponential growth in e-commerce and digital payments. This rise has led to more online fraud and increased sophistication of threats by harmful actors,” Pangam said. “As retailers build up their defenses, fraudsters have simultaneously bolstered their capabilities and tactics for breaking down those defense barriers.”
Still, many businesses said in the survey that they have “seen the rise in e-commerce as an opportunity to reprioritize their digital transformation initiatives.” Authors of the report noted that “while digital transformation is crucial to the success and longevity of a business,” 81 percent of survey respondents indicated their organizations are more vulnerable as a result of digital transformation.
Meanwhile, Ponemon’s study found the number-one challenge that organizations are facing when it comes to preventing this rise in online fraud and risk is battling the increasingly advanced sophistication of fraudsters. In fact, barriers to achieving fraud prevention showed to be mixed, with 47 percent of respondents saying that their organization regularly assesses the ability of its IT systems to prevent and contain online financial fraud and only 45 percent saying their organization has the necessary in-house expertise to prevent and contain online fraud.
Moreover, only about half (52 percent) of respondents said their organizations are “very effective in reducing online fraud.” “COVID-19 has seriously impacted organizations’ ability to protect online financial transactions against fraud as they’ve had to shift their attention to other areas or pivot their business to stay afloat,” Pangam said. “What’s surprising is that while many organizations report significant financial losses due to online financial transactions, nearly half (49 percent) are still not prioritizing protecting financial transactions. This is a huge, avoidable gap, which could be quickly addressed through a partner like PayPal.”
To help businesses navigate protection against fraud in an increasingly digital landscape, PayPal has launched Fraud Protection Advanced — utilizing insights from its data learning within a two-sided network of both merchants and consumers.
“Fraud Protection Advanced is one part of our broader commerce platform that is helping merchants adapt and make sense of the new omnichannel world,” Pangam said. “What’s unique about our fraud solutions and Fraud Protection Advanced is they are built on insights from partnerships with networks, issuers and acquirers and more than 20 years of data harnessed from both merchants and consumers across 15 billion transactions annually. Leveraging our machine learning and analytics capabilities, we are now able to take these insights and offer them to merchants to help them identify, investigate, resolve and mitigate fraud.”
Further recognizing that fraud protection is not “one size fits all,” the new solution will provide retailers with the ability to customize offerings to meet unique needs with features including customer filters and graph-based case management.
By reducing retailer’s exposure to fraud and offering the ability to differentiate legitimate from non-legitimate transactions, PayPal says its solution will help increase authorization and conversion rates, continuing a “commitment to democratizing access to critical tools and resources for all merchants that help better protect their businesses.”
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