Retailers reel from £11bn cost of fraud
Over one third of businesses fell victim, report reveals
THE UK retail sector lost £11.3bn to payments fraud last year, figures suggest.
More than a third of UK businesses (35 per cent) fell victim to fraudulent activity, cyber attacks or data leaks over the last 12 months, up 37 per cent on 2022, according to the report for financial technology platform Adyen by the Centre for Economic Business and Research (CEBR).
Retail businesses lost an average of £1,394,518 each to fraudulent activity over the last 12 months, the report said. Luxury fashion retailers lost an average of £2.8m, clothing and accessory businesses £2.6m and health and beauty brands £1.1m each.
In an effort to improve online sales, many retailers have opted for more lenient online returns policies. However, many now battle high rates of chargeback fraud.
If a retailer receives a fraud-related chargeback for a transaction, it means that the cardholder claims they did not authorise or participate in the transaction.
Fraud is also impacting shoppers, with 33 per cent of UK consumers becoming a victim of payments fraud over the past year, up from 23 per cent in 2022, a survey found.
Payment fraud is defined as a fraudster stealing someone’s credit or debit card number, or checking account data, and using that payment information to make an unauthorised purchase.
Consumers who fell victim to payments fraud in 2023 lost an average £311.09, an increase of 16 per cent on the year before.
Adyen chief operating officer Roelant Prins, inset, said: “Fraud is a pervasive challenge for retailers, and today’s findings demonstrate how it can significantly impact profits. Criminals are deploying more sophisticated methods when they attack businesses, including the application of AI, and it’s therefore critical to invest in the right defence mechanisms to protect the company and customers.
“With technology in place, such as machine learning tools, retailers should be able to recognise genuine customers and spot fraudulent activity across their sales channels.”
The Government published a Retail Crime Action Plan last October after consulting with retailers and police in order to “set out measures to tackle the rise in shoplifting, catch more offenders and keep retail workers safe”. It included a commitment from police to prioritise urgently attending shoplifting instances which involved violence against a shop worker, where an offender had been detained by security, or where attendance was necessary to secure evidence.
The new plan also set out advice for retailers on how to provide the best evidence for police to pursue criminal charges against perpetrators, including sending CCTV of the incident as quickly as possible after the offence is committed.
A new specialist police team was also created to build a comprehensive intelligence picture of organised crime gangs which are responsible for a large number of shoplifting incidents in order to target and dismantle them. The new team, named Pegasus, is a partnership between businesses and police which aims to improve the way retailers share intelligence with police forces.
In February the National Police Chiefs’ Council said preliminary data suggested the action plan was having a positive impact. Of more than 1,500 crimes in December reviewed across all retailers, police attended in 60 per cent of incidents where violence had been used, with 16 per cent of forces reporting a 100 per cent attendance rate.
The Co-op released details of a study which revealed 79 per cent of incidents where a shoplifter had been detained by its security staff during 2023 had not been attended by police. However, police attendance in December at all retailers was reported at 76 per cent.
ONLINE fraud is one of the greatest challenges facing both businesses and consumers, and the shocking scale of the problem is illustrated by today’s figures showing a 37 per cent jump in its incidence over the past year.
Retailers lost a staggering £11.3bn to payments fraud over that period, with more than a third of businesses now affected, which points to this being a crime that is being committed with impunity.
Shoppers are no less vulnerable, with 33 per cent losing an average of more than £300, with many undoubtedly being left out of pocket because their banks will refuse to compensate them for fraudulent activity on their debit cards.
It is increasingly apparent that this explosion in crime is an unwelcome price both businesses and their customers are having to pay for the boom in online shopping, which has opened them up to cyber attacks and data leaks that taken together with card fraud are seriously impacting profits.
The relentless year-on-year increase in fraud indicates that criminals are becoming more sophisticated in their ability to evade safeguards put in place by retailers to protect both themselves and shoppers.
The difficulty of tackling online fraud has become clear in recent years. Overstretched police forces often do not have either the resources or cyber expertise to track down those responsible, and their problems are aggravated by the fact that much fraudulent activity originates overseas and beyond the reach of our criminal justice system.
Though vigilance by consumers and improved security measures by retailers have important parts to play in beating the fraudsters, the international nature of this most insidious of crimes suggests that a new approach involving inter-governmental co-operation is now required. Unless there is a renewed determination to tackle fraud, it will continue to grow.