Fraud costs digital merchants up to 20 percent of their budget

According to a study conducted by Javelin on behalf of Vesta Corporation, merchants that sell digital goods each spend an average of USD 10.1 million every year on fraud-related costs, and spending will likely increase in the coming months.

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% of their operational budgets each year. Sellers of physical goods report spending 14% of their budget on fraud-related costs, and hybrid merchants who sell both digital and physical goods spend 13%.

As the US 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%) of digital goods merchants expect fraud and chargeback costs to increase over the next 12 months.

Personnel costs represent more than 35% 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% of hybrid merchants and nearly half of digital and physical goods merchants believe that finding qualified personnel for fraud and chargeback management is difficult.