The cost of fraud for retail, ecommerce and financial institutions in the surveyed markets is high.

LexisNexis® Risk Solutions has released its 2021 True Cost of Fraud APAC Study covering the retail, ecommerce, financial services and lending sectors for Australia, Hong Kong, India and Japan. The study provides a snapshot of fraud trends in the Asia Pacific (APAC) region during the pandemic and spotlights key pain points for firms in relation to navigating new payment mechanisms, transacting through online and mobile channels and expanding internationally.

The cost of fraud for retail, ecommerce and financial institutions in the surveyed markets is high. The LexisNexis Fraud Multiplier – the total amount of loss a firm occurs based on the actual U.S. dollar value of a fraudulent transaction – shows the cost per transaction is $3.51 in Australia; $3.61 in Hong Kong, $3.87 in Japan and $3.84 in India. All four countries reported higher costs per transaction than the regional 2019 average that involved other APAC markets at $3.40.

A combination of factors is driving the high cost of fraud, including market events influencing the use of transaction channels/payment methods, the challenges that businesses face when assessing fraud with these transactions and the less than optimal approach that businesses take towards fraud detection, prevention and minimizing customer friction.

The report’s findings stem from a comprehensive survey of 418 risk and fraud executives in retail, ecommerce, financial services and lending companies in the APAC region in 2021.

Key findings from the LexisNexis Risk Solutions True Cost of Fraud APAC Report:

• Financial institutions tend to have higher costs – Given the heavy account-based nature of their business and the need to repay fraud losses to customer accounts, financial institutions often employ more internal and external labor for investigation, detection and recovery. On average they spend $3.78 per transaction in Australia, $4.70 in Hong Kong, $4.46 in Japan and $4.76 in India.

• The effect of the pandemic – The pandemic has presented the same challenges to the Australian, Hong Kong, Japanese and Indian markets such as shutdowns, fear of in-person contact and fear of transmission, though the disruption was not equal. Each market saw a marked increase in the use of digital transactions and digital payment methods while cash and in-person payments dropped. However, Hong Kong and India changed more fundamentally as these markets have traditionally had more in-person and cash-driven transactions. Businesses in both markets needed to adapt quickly and many were unprepared from a fraud detection standpoint.

• Identity verification remains a top challenge – Common online and mobile channel challenges across markets included identity verification and determining transaction origination. The rise of synthetic identities was the most common source of identity verification issues. Ecommerce merchants indicated that transaction origination is more commonly cited as a challenge due to their limited use of solutions to capture device ID and geolocation. The rise of mobile and digital wallets as well as other contactless payment methods has created difficulty for many ecommerce merchants when assessing fraud risk related to these channels. 

• Limited use of best-practice fraud detection/mitigation approach – The use of digital/passive identity authentication solutions and transaction risk assessment solutions was limited in the Australia and Hong Kong markets. The number of organizations that integrated cybersecurity and/or digital customer experience with fraud operations was also limited in both markets. The ecommerce sector for the Hong Kong market is an outlier as it is fairly nascent and still in a development stage. This is primarily because Hong Kong, a highly developed territory, has enabled easy access to area businesses and in-person transactions have been much more common than those made online.

Cameron Church, director of fraud and identity, LexisNexis Risk Solutions, said, “As fraudsters become more sophisticated and their methods more complex, businesses need a robust fraud and security technology platform that helps them adapt to a changing environment, offering strong fraud management while maintaining a low-friction customer experience. A successful fraud detection and prevention approach involves an integration of technology, cybersecurity and digital experience programs to address unique risks from different transaction channels and payment methods.

“High fraud costs impact ecommerce merchants, retailers and financial institutions as they increase each year – even without the influence of COVID-19,” continued Church. “With sophisticated threats on the rise, taking a multi-layered solution approach has proven to be the most effective way to fight fraud across various channels and transaction types, as well as performing a more complete assessment that combines physical and digital identity data analysis. Using different solutions to support fraud detection at various points throughout the customer journey will strengthen a firm’s overall defense.”

Download the report.

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The LexisNexis Risk Solutions Cybercrime Report analyzes data from more than 22.5 billion transactions processed by the LexisNexis® Digital Identity Network®, a 37% growth year over year. Mobile device transactions also continue to rise, with 66% of all transactions coming from mobile devices in the first half of 2020, up from 20% in early 2015. The Digital Identity Network® also notes an uptick in transactions from new devices and new digital identities. We attribute this to many new-to-digital consumers moving online to procure goods and services that were no longer available in person or harder to access via a physical store, during the pandemic.

The Asia-Pacific (APAC) region saw higher attack rates than the global average, 3% compared to 1.4% globally. Attack rates also grew during both April and May and experienced a large spike in June through an identity spoofing bot attack from the Philippines, which targeted a payment gateway. However, attack rates in APAC declined across all channels year over year. The only exception was a 9% growth in automated bot attacks in the region, although this growth is still lower than the global average of 13%.

APAC continues to experience higher attack rates than North America or EMEA. The Digital Identity Network found significant bot activity coming from Japan, India and Australia. They now rank fifth, seventh and eighth respectively as some of the largest originators of automated bot attacks by volume globally. Japan appears to be a particular hotspot: The country recorded the largest growth in bot attack originations year over year and is now one of the top ten largest contributors to human-initiated cyberattacks by volume.

Hyper-connected, networked fraud continues to be a key feature of attacks. One example of an Australian fraud network saw groups of fraudsters targeting the financial services, e-commerce and media sectors. This single network consisted of 2,400 devices, 3,700 email addresses and 1,500 telephone numbers, and at least $800,000 USD was exposed to fraud across the entire network.

Additional Key Findings from the LexisNexis Risk Solutions Cybercrime Report:

Decline in attack rate

The overall human-initiated attack rate across the Digital Identity Network fell through the first half of 2020, showing a 33% decline year over year. The breakdown by sector shows a 23% decline in financial services and a 55% decline in e-commerce attack rates.

Latin America experienced the highest attack rates of all regions globally and realized consistent growth in attack rates from March to June 2020. The attack patterns in U.S., Canada and EMEA had less volatility and fewer spikes in attack rates during the six-month period observed

Attack vector global view

Media is the only industry that recorded an overall year over year growth in human-initiated cyberattacks. The Digital Identity Network recorded the 3% increase solely across mobile browser transactions

Globally, automated bots remain a key attack vector in the Digital Identity Network. Financial services organizations experienced a surge in automated bot attacks and continue to experience more bot attacks than any other industry.

Across the customer journey

New account creations see attacks at a higher rate than any other transaction type in the online customer journey. However, the largest volume of attacks targets online payments. Login transactions have seen the biggest drop in attack rate in comparison to other use cases.

Analysis across new customer touchpoints in the online journey is included in this report for the first time, providing additional context on key points of risk such as money transfers and password resets.

During COVID-19

All industries have felt the impact of COVID-19. There are clear peaks and troughs in transaction volumes coinciding with global lockdown periods. Financial services organizations realized a growth in new-to-digital banking users, a changing geographical footprint from previously well-traveled consumers and a reduction in the number of devices used per customer. There have also been several attacks targeting banks offering COVID-19-related loans.

E-commerce merchants have seen an increase in digital payments and several other key attack typologies that coincide with the lockdown period. These included account takeover attacks using identity spoofing and more first-party chargeback fraud.

“This is the first LexisNexis Risk Solutions Cybercrime Report to include data on the new reality of conducting business during a pandemic,” said Rebekah Moody, director of fraud and identity at LexisNexis Risk Solutions. “The move to digital, for both businesses and consumers, has been significant. Yet with this change comes opportunity for exploitation. Fraudsters look for easy targets: whether government support packages, new lines of credit or media companies with fewer barriers to entry. We need to ensure that all consumers, especially those who might be new to digital, are protected. Businesses must arm themselves with a layered defense that can detect the full spectrum of possible attacks and is future-proofed against evolving threats.”

“Fraudsters remain masters of disguise. They operate alone and in highly connected groups to build up huge networks of cross-industry and regional fraud. This is a particularly acute issue in the APAC region, where we see the highest global attack rates,” added Cameron Church, director of fraud and identity at LexisNexis Risk Solutions. “We must identify and block fraudsters – whether opportunists or highly networked fraud rings – the moment they transact. Knowledge sharing must be as pivotal to global businesses as it is to the cybercriminals that attack them.”

Read the LexisNexis Risk Solutions Cybercrime Report.

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