Retailers of digital goods spend up to 20 percent of budget just on fraud and chargeback management

ATLANTA, Georgia — Sept. 30, 2015 /PRNewswire/ — In addition to typical fraud costs, such as the loss of goods and chargeback fees, merchants that sell digital goods each spend an average of $10.1 million every year on fraud-related costs, and spending will likely increase in the coming months, according to a new study.

The Impact of Fraud and Chargeback Management on Operations study—conducted by Javelin on behalf of Vesta Corporation, a global leader in the field of card-not-present (CNP) transactions—discovered that nearly 3 in 4 merchants dealing in both digital and physical goods say fraud and chargebacks have a major financial impact, accounting for 13 to 20 percent of their operational budgets each year. Sellers of physical goods report spending 14 percent of their budget on fraud-related costs, and hybrid merchants who sell both digital and physical goods spend 13 percent.

As the United States transitions to EMV technology, which uses chip-embedded cards, fraud related to card counterfeiting will be practically eliminated. Despite this, online and mobile fraud costs will grow considerably as fraudsters continue to overwhelm merchants in less-secure CNP channels. More than half (51 percent) of digital goods merchants expect fraud and chargeback costs to increase over the next 12 months.

“This study makes it clear: fraud costs are eating into many merchants’ budgets, reducing the amount of money that could be spent on activities that grow and improve the company,” said Al Pascual, director of fraud and security at Javelin. “Unfortunately, if merchants don’t take action now, those costs will continue to rise as merchants attempt to mitigate the growth of online and mobile fraud.”

Personnel costs represent more than 35 percent of fraud/chargeback spending for all merchants; however, digital goods merchants employ nearly five times the fraud personnel as physical goods merchants and nearly twice as many as hybrid merchants. Additionally, more than 60 percent of hybrid merchants and nearly half of digital and physical goods merchants believe that finding qualified personnel for fraud and chargeback management is difficult.

The study suggests that outsourcing fraud prevention services might help merchants, especially those dealing in digital goods, better manage associated costs.

“Among hybrid merchants, who have been outsourcing fraud operations for many years, 65 percent said they found third-party services to be cost-effective,” said Christopher Uriarte, chief strategy and payments officer at Vesta Corporation. “Using a third-party provider can help merchants reduce the money and staff time they’re spending on fraud- and chargeback-related activities, freeing up resources for efforts that drive revenue and company growth instead.”

To download a complimentary copy of the 25-page report, The Impact of Fraud and Chargeback Management on Operations, please visit http://info.trustvesta.com/research.

Study Methodology
On behalf of Vesta Corporation, Javelin conducted an independent, online quantitative study in June 2015 of 362 merchants earning $1 million or more annually, including 118 merchants selling only digital goods, 106 merchants selling only physical goods and 138 merchants selling both types of goods.

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