While retailers recognize the importance of fighting fraud, their attempts to mitigate it often make things difficult for consumers.
More than three-fifths of U.S. e-commerce businesses and 58% of U.S. retail businesses reported increased customer churn due to fraud prevention measures, according to a LexisNexis True Cost of Fraud study.
The study broke down the reasons for customer abandonment in both retail and e-commerce settings. Interestingly, customers seem to resent fraud prevention measures more when shopping in person. For brick-and-mortar retailers, the top reasons consumers cited for abandoning the account creation or onboarding process were a poor user experience and friction caused by fraud prevention.
In contrast, for e-commerce, concerns shifted: lack of communication and delayed responses replaced friction as the main reasons for abandonment.
This remains true despite the fact that online and mobile transactions account for the largest share of fraud losses. In the U.S., 53% of fraud losses stem from online purchases, with another 30% resulting from mobile purchases.
The good news is that businesses are increasingly aware of the need to minimize customer friction during checkout and account creation. According to LexisNexis, half of all U.S. retailers reported being extremely focused on reducing friction during the account creation process, while 45% said the same about the checkout experience.
“We get a lot of reports that consumers are not happy with onboarding processes,” said Jennifer Pitt, Senior Analyst of Fraud and Security at Javelin Strategy & Research. “They always say, ‘I thought I already gave you my information. Why do I keep having to give you this information?’”
More Than Just the Dollars Lost
The cost of fraud extends far beyond the direct financial losses. According to LexisNexis, the average merchant spends $4.60 for every dollar lost to fraud—a figure that has nearly doubled since 2016.
In addition to the immediate revenue hit, fraud can negatively impact customer trust, diminish brand loyalty, and damage brand integrity. More than a third of respondents report rising fees as a significant consequence of fraud.
Seamless Ways to Fight Back
Experts say that AI-powered solutions can help balance customer friction with the need to prevent fraud and money laundering and address cybersecurity concerns.
“Implementing AI-powered fraud solutions will also allow banks to shift human personnel to where they are needed most–to customer facing roles,” said Pitt. “Shifting personnel ensures that customers feel valued and protected, reducing customer loss.
“There will always be a cost,” she added. “It may be on the front end – purchasing strong fraud detection solutions. Or it may be on the back end – hiring personnel for lookbacks, or paying fines, or losing customers. Banks are going to have to figure out how to implement some of these real-time solutions. In the next few years, regulators may not give them the choice.”
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