Fraud Risks and methods to identify and prevent credit card fraud

Results from the 2010 LexisNexis True Cost of Fraud study show that 20% of merchant fraud losses are attributed to friendly fraud, 42% to lost or stolen merchandise, 18% to identity fraud, and 20% to  fraudulent requests for a return/refund. Friendly fraud occurs when a consumer purchases an item online and receives the product but claims not to have received it, requesting a refund
or chargeback from the merchant or delivery of a duplicate item.

Prevention holds the greatest impact in minimizing fraud losses.

Fraud Loss by Company Size, Product Type, Channel and Industry, 2010 Company Size

Small Company avg <$1M revenues Medium Company Avg $5M revenues Large Company Avg >$50M revenues
Average annual fraud 

amount ($)

$2,145 $104,000 $6,767,000

For the complete study, get it free by registering at the Lexis Nexus web site:  2010 LexisNexis True Cost of Fraud.


Friendly fraud– A small business owner was able to successfully defend against consumer claim that box was delivered empty by showing Fedex records of the weight. The difficulty with this going forward is that new rules have a 180 day chargeback period. Make sure your shipping company keeps those records for as long as you need them.

Identity fraud– Unless there is an issue of verifying ownership, such as when a customer is picking up a car left for repair, merchants cannot ask for a drivers license or other identification for a standard transaction. However, there are many other ways to prevent this type of crime. In the brick and mortar world, a mandatory check for the last 4 digits is a simple and effective way to block cloned credit cards. Due to the global nature of our society, requiring the zip code would frequently result in too many declines. However, you can add additional filters with our payment processing platform that sits in front of your existing processor. Essentially it is your fraud protection dashboard where you control in real-time the level of risk you’re will to accept either by blocking specific transactions entirely, or by sending automated email alerts to managers who then can assess the situation. This works very similar for online transactions.


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