Merchants Losing More than 7.5% of Annual Revenue to Fraud

Digital Goods Merchants Spend 23 Percent of Budget on Fraud and Chargeback Management

PORTLAND, OR — October 25, 2016 — Between fraud management costs, chargeback losses and false-positive declines, e-commerce merchants are losing more than 7.5 percent of their annual revenue to fraud, according to a new study. Digital goods merchants specifically reported spending 23 percent of their operational budget on fraud and chargeback management.

The Financial Impact of Fraud study – conducted by Javelin Strategy & Research on behalf of Vesta Corporation, a global leader in the field of card-not-present (CNP) transactions – revealed that all e-commerce merchants were dedicating more of their operational costs to managing fraud when compared with 2015. Digital goods merchants suffered the worst losses, at 8.6% of revenue on average, but hybrid goods merchants, selling both physical and digital goods, faced similar costs at 8.1% of revenue.

The majority of merchants’ costs came from fraud management, which accounted for around 75% of total costs. Almost half (49 percent) of the chargeback losses came from online channels, which amounted to nearly three times more than in-person chargeback losses. And merchant revenues were negatively impacted by more false positives, with 25 to 34 percent of declined transactions later found to have been legitimate. Beyond simple revenue losses, false positives’ side effects also include decreased customer loyalty.

“Fraud is taking a toll on merchants’ psyches and their bottom lines, as fraudsters use ever-changing tactics to circumvent traditional controls,” said Al Pascual, research director and head of fraud and security at Javelin Strategy & Research. “With their revenues getting hit by the costs of fraud management, chargebacks and false positives, merchants see fraud increasingly undermine their profitability.”

As more merchants of physical goods transition to EMV technology, which uses chip-embedded cards, fraudsters are increasingly targeting less secure CNP channels, including online and mobile transactions. To better manage the associated costs, the study suggests outsourcing fraud prevention services might help, especially for those merchants specializing in digital goods.

“This study clearly shows the steep challenges that merchants face as they try to protect the customer experience while dealing with the financial realities of combating fraud,” said Tom Byrnes, chief marketing officer at Vesta. “Third-party management solutions can empower merchants to get back to the business of retailing goods and services, rather than fighting fraudsters.”

To download a complimentary copy of the 35-page report, The Financial Impact of Fraud: Merchants Challenged as E-Commerce Fraud Rises Post-EMV, please visit

Study Methodology
Vesta Corporation retained Javelin to conduct an independent online study in June 2016 of 500 e-commerce merchants earning $1 million or more annually, including 156 merchants selling only digital goods, 155 merchants selling only physical goods, and 189 hybrid merchants, selling both types of goods.

About Vesta Corporation
Vesta Corporation is the global leader of revenue-generating payment solutions for enterprise partners in the telecommunications, digital goods, media, and financial sectors. The company’s patented fraud protection technology is proven to increase conversion and acceptance while eliminating fraudulent transactions and merchant liability. Vesta has been recognized as a leading innovator in payments technologies, holds multiple patents, and has won numerous awards as one of America’s fastest growing companies. Founded in 1995 and headquartered in Portland, OR, Vesta’s operations span the Americas, Europe and Asia.

Media Contact
Ian Toner
Communications Strategy Group, on behalf of Vesta Corporation