CSI: Did fraud kill the online customer?
You don’t need a crime scene chalk outline to figure out why a customer left never to return to your web site to shop if the customer was victimized by fraud in a prior transaction. According to the new 2009 LexisNexis® True Cost of Fraud Benchmark Study more than four in ten victims will avoid certain merchants consequent to being victimized due to fear resulting from an unauthorized purchase made at a particular merchant.
The LexisNexis study backed by research from Javelin Strategy and Research delves further into this subject suggesting that merchants should do more than just educating their customers on how to protect themselves from online fraud. The study says that merchants must show customers that they’re taking a proactive role in protecting their customers from online fraud in ways that are “visibly robust” to consumers as a critical factor to promote customer retention and loyalty. Further, three in ten fraud victims cut back on overall online purchases. This chilling effect that online fraud has on its victims is one of the cost elements of fraud assigned to merchants, banks and consumers to quantify the “true” cost of fraud.
You could say the buck stops with consumers—literally—when they fall victim to fraud and associate negative feelings with the merchant. I believe that the impact consumer’s perceptions have on merchants and banks when it comes to anti-fraud efforts will have a much greater impact on their business and how aggressively they invest in visibly making their customer’s experiences safe from fraud. Consumers will vote with their wallets by selectively engaging with online businesses that promote and prove that they are doing everything possible to make their customers safe and their online experience convenient.
This consumer chilling effect from online fraud extends beyond merchants. Twenty-two percent of the respondents said they no longer bank online as a result of being a victim of online fraud. You can bet it doesn’t end there: online dating, gaming, and social networks are subject to the big chill effect too—Web 2.0 say hello to online fraud.
If you’re a merchant or financial institution this LexisNexis study is a must-read. In fact any online business can benefit from its findings and recommendations. The cost figures in the study are staggering with merchants suffering $100 billion in fraud losses from unauthorized transactions and fees/interest associated with chargebacks.
A key finding in the report notes the low satisfaction and effectiveness ratings merchants have for fraud technology solutions, pointing out that this presents an opportunity for merchants to “assess the cost-effectiveness of the latest fraud-fighting technologies and apply improvements.” Device identification (AKA device fingerprinting) is a strong contender here, offering a new source of anti-fraud data and decision-making power that can further reduce fraud rates, lower costs and improve online customer experience.
Caveat emptor/venditor emptor. Buyers and sellers beware when online fraud shapes consumer perceptions that put a chill on ecommerce.
- Tom
