You don’t need me to tell you that fraud is on the up, but just how it is impacting brands and merchants makes for startling reading. A recent study by Ravelin out this week shows two stark trends: fraud is increasingly damaging to merchants and AI is only going to make this worse.
As we reported, the majority (91%) of retailers, travel companies, digital goods providers and marketplaces are worried about criminals turning to AI to attack them and their customers and there is concern that many different types of fraud will spike in the coming year.
Drilling down into Ravelin’s data we find that 74.8% of merchants and retailers report an increase in fraud, 63.6% have already been hit by AI-powered fraud, 44.9% have seen first party fraud grow and, of particular interest to telemedia, 69.3% of merchants have seen a rise in payment fraud.
Overall, 26.5% of merchants surveyed have seen a significant increase in payment fraud, with 22.6% experiencing that as chargeback fraud, 20.2% account take over fraud and 20.7% a significant rise in promo, voucher and policy abuse.
But it is the role of AI in all this that is most alarming. Ravelin’s AI V AI report shows 64% of merchants fear they have already been targeted by fraudsters using artificial intelligence and there is growing concern that AI-enabled fraud will impact company growth (51%) and revenue (39%). For the digital goods segment of the market, it is particularly high: 71% reporting that they have already been attacked by fraudsters using AI.
Across the board, card not present (CNP) fraud is the most significant fraud issue for merchants – except in Mexico, where supplier fraud is the biggest headache.
The cost of fraud
The cost of all this fraud is also mounting. According to the report, 27% of the companies quizzed by Ravelin say that fraud is costing them $15mn or more annually. Bearing in mind that some of the companies interviewed are enormous, it is still a good indicator of just how painful fraud already is and how it may well yet become even more of a headache to all businesses in the coming years.
But the impact of fraud isn’t just a direct cost in lost revenues, there are myriad other costs that come from fraud. Across all retail businesses surveyed 51.8% say that the biggest impact that is has is on growth – ahead of the 45.3% that cite revenue as the biggest impact. Brand and reputational damage also ranks highly (40.4%).
All this leads to customer loyalty issues, operational efficiency issues and even staff morale being affected. This picture is pretty much replicated when looking specifically at digital goods merchants: 53% see impact on growth, 47.8% revenue, 45% brand image and 23% staff morale. The impact of fraud on digital businesses is huge.
What can be done?
So, what is the industry doing about it? Across retail in general, most businesses are using the tools available to try and fight fraud. Interestingly, 66.2% of them are looking at machine learning to fight AI fraud, while as many as 46% are also using AI to combat AI fraud.
The biggest impediment however is cost. Nearly 40% of merchants say that finding the budget to do this is the biggest obstacle to tackling all fraud, let alone the deluge of it driven by AI.
In the telemedia sector there has been a lot of work done to counter DCB fraud and other payment fraud thanks to companies such as Evina, Tetra Mobile Solutions and Empello and with compliance increasingly becoming something that players across the market have embraced – as discussed by Kevin Dawson from MCP Insight at Telemedia8.1 LIVE in Barcelona.
Yet there is still much more to be done. While the telemedia industry is strong on fraud prevention, the fraudsters are getting ever more sophisticated and, armed wit state of the art AI, they are only going to do more damage.
