The cost of fraud for retail, eCommerce and financial institutions shows the cost per transaction is US$3.61 in Hong Kong. This is a higher cost per transaction than the regional 2019 average that involved other APAC markets at US$3.40, said a study by LexisNexis Risk Solutions.
The report’s findings stem from a comprehensive survey of 418 risk and fraud executives in retail, eCommerce, financial services and lending companies in the APAC region in 2021. Other markets surveyed were Australia where fraud per transaction mounted to US$3.51 in Australia; Japan at US$3.87 and India at $3.84 in India.
The study added that the pandemic has presented the same challenges to the Australian, Hong Kong, Japanese and Indian markets such as shutdowns, fear of in-person contact and fear of transmission, though the disruption was not equal. Each market saw a marked increase in the use of digital transactions and digital payment methods while cash and in-person payments dropped.
However, Hong Kong and India changed more fundamentally as these markets have traditionally had more in-person and cash-driven transactions. Businesses in both markets needed to adapt quickly and many were unprepared from a fraud detection standpoint.
The study added that a combination of factors was driving the high cost of fraud, including market events influencing the use of transaction channels/payment methods, the challenges that businesses face when assessing fraud with these transactions and the less than optimal approach that businesses take towards fraud detection, prevention and minimising customer friction. Common online and mobile channel challenges across markets included identity verification and determining transaction origination.
Ecommerce merchants indicated that transaction origination is more commonly cited as a challenge due to their limited use of solutions to capture device ID and geolocation. The rise of mobile and digital wallets as well as other contactless payment methods has created difficulty for many eCommerce merchants when assessing fraud risk related to these channels.
The study also found that financial institutions tend to have higher costs given the heavy account-based nature of their business and the need to repay fraud losses to customer accounts, financial institutions often employ more internal and external labor for investigation, detection and recovery. On average they spend US$4.70 in Hong Kong.
Cameron Church, director of fraud and identity, LexisNexis Risk Solutions, said as fraudsters become more sophisticated and their methods more complex, businesses need a robust fraud and security technology platform that helps them adapt to a changing environment, offering strong fraud management while maintaining a low-friction customer experience.
A successful fraud detection and prevention approach involves an integration of technology, cybersecurity and digital experience programs to address unique risks from different transaction channels and payment methods, Church said.
“High fraud costs impact eCommerce merchants, retailers and financial institutions as they increase each year – even without the influence of COVID-19,” continued Church.
“With sophisticated threats on the rise, taking a multi-layered solution approach has proven to be the most effective way to fight fraud across various channels and transaction types, as well as performing a more complete assessment that combines physical and digital identity data analysis. Using different solutions to support fraud detection at various points throughout the customer journey will strengthen a firm’s overall defense,” he said.