Where eCommerce Merchants Are Losing Revenue Fighting Fraud

The cost of eCommerce fraud in 2022 may be a lot greater than you thought. In this article, learn about what's contributing to the increased cost of fraud for eCommerce merchants.

It's estimated that in 2021, the cost of eCommerce fraud surpassed $20 billion globally.

Having a proper fraud prevention strategy in place is table stakes if you plan to operate a successful eCommerce business. Fraud prevention is essential for every online business due to the considerable impacts that it can potentially have on your business's ability to scale.

In the article below, we'll be covering the areas where eCommerce companies are losing revenue to the fight against fraud. We'll identify key areas that cause revenue leaks and offer up best practices that will address these challenges.

The Cost of Chargebacks

The most significant cost related to eCommerce fraud is undoubtedly chargebacks. According to industry experts, chargebacks were projected to hit $31 billion by the end of 2020. In 2016, that number was only $7 billion.

By doing some quick math we can see there's been an almost 500% growth rate in revenue lost to chargebacks.

Some of these chargebacks are reasonable. A customer was unhappy with a product or service and requested their money back. All eCommerce businesses should live up to what they advertise.

As a result, these types of chargebacks should simply be looked at as a sunk cost of doing business.

But, there are also dishonest shoppers out there attempting to use chargebacks to their advantage. These people will buy a product and then immediately request a chargeback from their credit card company.

This strategy is used by fraudsters in an attempt to collect free products. And, unfortunately, it works a lot more often than it should.

One of the most effective methods for reducing chargeback expenses is to invest in a fraud solution that offers chargeback reimbursement protection. For example, Vesta Payment Guarantee offers a zero-fraud-liability guarantee that completely protects a merchant's revenue from all fraud chargeback liability. If Vesta approves a transaction, and the cardholder files a fraudulent chargeback claim later, we will cover the loss and any associated fees.

Abandoned Cart Revenue

Another lesser-known cost associated with eCommerce fraud is the revenue lost due to cart abandonment. Smart eCommerce business owners are right to be cautious about the threat of fraud, but oftentimes the solutions they employ to help stop fraudsters end up turning away legitimate customers. For example, legacy fraud prevention tools that use strict, pre-determined rulesets will tend to mark orders as fraudulent if the cart value is above a certain threshold.

Too many identity verification steps can also increase an eCommerce website's cart abandonment rate. If there's too much friction in your website's checkout experience, your customers won't bother to continue buying from you. eCommerce retailers need to strike a balance between managing the risk of fraud and providing an optimized customer experience on their website.

If you're noticing your cart abandonment rate is unusually high after implementing a new fraud detection tool, it may be time to look into a new solution that will more accurately identify fraudulent transactions.

Defense Is the Best Offense

Your best method for fighting fraud is to make sure your defense is sound. Vesta's end-to-end fraud solution helps eCommerce merchants completely eliminate the cost of fraud so they can focus on what matters most: increasing sales and growing their business.

Want to learn more about what we at Vesta have to offer? Feel free to reach out to us today and see how our fraud solution can help lower your fraud costs.