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Fraud

Two thirds of UK consumers think fraud is ‘inevitable’ when shopping online

The majority of UK consumers accept the risk of fraud when shopping online, according to research from Paysafe.

70 percent now prefer shopping online rather than going to physical stores, and a similar number (68 percent) shop online much more than they did a year ago.

This is despite almost two thirds (65 percent) of consumers accepting that a certain level of ecommerce fraud is ‘inevitable’ during the ecommerce process, up from 52 percent last year, underlining the increasing value consumers put on convenience.

33 percent of UK shoppers said they have experienced payment fraud in the past year, up 6 percent on 2017, which Paysafe says is perhaps symptomatic of merchants continuing to prioritise digital sales.

Research from Ovum shows 58 percent of merchants place great value in reducing lost sales online compared to tackling fraud. Nearly half (48 percent) admitted they would accept a higher level of fraud in return for greater sales.

The report from payments provider Paysafe also showed that when shopping online, 61 percent have used digital wallets in the past month, 34 percent have used a credit card, and 57 percent a debit card.

Meanwhile, 51 percent are using in-app purchases more than a year ago, as the popularity of services such as Uber and Deliveroo change the traditional eCommerce payment process by retaining customers’ information for a seamless app experience. In fact, 79 percent now say they prefer to shop on a website that already has their payment information stored, highlighting that UK consumers place a premium on convenience.

Yet, data shows these attitudes do not translate to the realm of ‘frictionless’ payments – i.e. invisible transactions that take place ‘behind the scenes’ in apps – which are being held back by UK consumer concerns over security and data privacy, according to the findings. 52 percent of UK consumers cite fraud as the biggest barrier to using them; 43 percent express concerns around the use of their data, while two thirds (67 percent) think voice-activated systems are not secure.

And in spite of the popularity of eCommerce, cash continues to thrive as the most common form of payment: 88 percent of consumers used it in the past month to make a purchase.

Although 62 percent of UK consumers carry less cash than they did a year ago, falling from an average of £33 last year to £21 in 2018, their relationship with cash is changing and there are other ways to keep it at the forefront of the payment mix.

For example, in Austria and Germany, online cash replacement systems which negate the need to share financial data are used by 12 percent and 9 percent of respondents respectively. Indeed, 67% of UK consumers said they feel more comfortable purchasing online via a payment option where their financial details are not shared.

In North America, prepaid cards are the most popular cash alternative, used by 18 percent of Canadians and 16 percent of Americans respectively.

Oscar Nieboer, Chief Marketing Officer at Paysafe Group, said: “UK consumers’ attitudes towards fraud in payments are largely defined by the medium of the transaction. In the UK, we have now reached a level of maturity in online retail – most websites are optimised, the checkout process is increasingly simple and delivery is getting quicker. In turn, more consumers are telling us they are accepting a level of fraud for this convenience. What is notable, though, is the same rules do not yet apply to biometrics, such as voice-activated payments. The idea of a consumer’s unique biometric data being defrauded is uncomfortable, and this manifests as emerging technology like voice not yet attracting mainstream usage for payments.”

These findings emerge as other regions are taking active steps to navigate the fraud landscape typically associated with online retail. Only 28 percent and 26 percent of German and Austrian consumers accept a level of fraud is inevitable, which is why pay by invoice is popular in these regions. 29 percent of Germans and 38 percent of Austrians have used this method, which circumnavigates the entry of payment details online, with offline verification and authentication replacing it.

“What the diversity of payment types in other regions shows is we shouldn’t simply accept fraud. We shouldn’t have to choose between risk and convenience, and in a time of hyper-awareness around data security and privacy, merchants must place a premium on securing customers’ data now more than ever,” said Nieboer.

Industry Spotlight: ‘Pigeon-holing’ potential reason behind rising shrink losses…

Mass merchants and department stores have experienced an alarming 58 per cent increase in shrinkage rates since last year, which, according to the 2016 UK Retail Fraud Survey, is no surprise due to retailers continuing to treat online and store loss prevention separately.

The survey, published by Retail Knowledge and sponsored by the outsourced inventory data collection provider, WIS International — for the second consecutive year –also details the expensive systems, processes and strategies presently in place at some of the UK’s top retailers.

Research has indicated that retailers are increasingly taking a ‘joined up’ approach to store and online loss prevention by implementing a holistic approach to risk across all channels. However, somewhat contradicting this, the same survey a few years ago concluded that just a small percentage of retailers took this stance. This year, only 30.3 per cent of retailers continue to operate in silos across channels; a significant shift in how risk is managed and, in this respect, the report considers mass merchants and ‘large format speciality’ to be lagging behind; with 60 per cent and 40 per cent respectively still treating channels separately.

In addition, retailers who have decided to take a holistic approach to loss prevention across all channels have seen a decrease in shrinkage rates, compared to those opting for the separate avenues have seen a substantial increase in the 12 months; contributing to the calculated £2.34 billion loss to shrink.

Paul Bessant of Retail Knowledge said: “Today departments work together across the broad range of disciplines necessary to support the multiple channels through which business is conducted. This inter-departmental approach typifies the operations of leading retailers and is reflected in this survey which, inter alia, documents the change from a silo approach to online and offline, to a holistic one.”

He continued: “Only 36.6 per cent of retailers treat online and offline separately, compared with figures going back to 2013 when the figure was closer to 100 per cent. This is really great news, considering shrink has fallen again this year, it really shows that working collaboratively is the most effective way of beating retail crime. Those retailers that do treat online and offline separately need to rethink their approach if they are to effectively lower shrink year on year.”

Further highlights of the survey include the decrease in credit card fraud; down from 55 per cent in 2015 to 51 per cent in 2016; return fraud has dropped from last year’s figure of 0.5 per cent to 0.33 per cent of sales; and store loss prevention spends has jumped to 1.06 per cent from 0.6 per cent of sales.

The US is also currently dealing with retail shrink losses, as the University of Florida’s 2016 National Retail Security Survey, retail shrink has remained at ‘historically’ low levels with losses from shrink increasing from $44 billion in 2014 to $45.2 billion last year; and inventory shrink as a percentage of retail sales still at the same rate as the year before.