Vesta Report: CNP Fraud Is Becoming Highly Sophisticated, Resulting in New Threats for Merchants Globally

Vesta, a transaction guarantee platform for digital or online purchases, has published its Global Card-Not-Present (CNP) Fraud Report, which features an analysis of millions of virtual transactions from Q1 2020 through Q1 2021 in order to track how CNP fraud has evolved during that particular time period.

The total percentage of international transfers its system identified as being potentially fraudulent reportedly ranged from 10-13%. The average value of each fraudulent transfer ranged from $126 to $155. But fraud attempts are not evenly distributed, the report clarified. For instance, fraudulent attempts at individual merchants have ranged from as low as 0.8% to more than 30% depending on the type of business and jurisdiction.

A CNP transfer takes place whenever a purchase is made without the client being physically presenting so they can share their credit card with the merchant. And when a CNP transfer turns out to be fraudulent, the liability lies with the merchant.

Whenever a merchant approves a fraudulent CNP transfer, it results in a chargeback, and chargebacks come with certain fees – which can be around $25 per transaction. During Q1 2020, the Vesta team determined that 13% of total transfers were most likely fraudulent, and that’s why it blocked those transactions to ensure consumer protection.

Notably, 13% is an aggregate figure, which is inclusive of high and low-risk merchants. For low-risk merchants, Vesta had reportedly cleared around 99% of all transfers, but for high-risk merchants that rate varied considerably depending on fraudulent activity. For high-risk merchants that don’t have services like Vesta, approving that many fraudulent transfers may have have a serious impact on revenue and even brand reputation.

Ron Hynes, CEO at Vesta, stated:

“If you’re an eCommerce business doing 5 million transactions per year and 13% of those are fraudulent, you’re looking at 650,000 bad transactions, and if each one of those comes with a $25 chargeback fee, you’re now looking at more than $16 million dollars in fees. On the other hand, if you decline too many legitimate transactions in an effort to fight fraud, you end up with significant losses.”

Ron added:

“For example, if that same merchant doing 5 million transactions per year has an average order value of $125 and blocked 30% of all transactions when only 13% were fraudulent, they’re now losing more than $100 million in annual revenue. That’s what makes CNP fraud such a challenging problem to deal with – you have to strike the perfect balance between fighting fraud while maximizing approvals of legitimate transactions.”

There are five operating systems that currently make up most of the digital commerce orders – Android, iOS, Linux, OS X, and Windows. In order to get a more comprehensive understanding of how operating systems affect CNP fraud, Vesta carefully looked at the overall percentage of fraudulent transfers carried out via each, along with the average value of those transactions.

It was able to determine that Android is the operating system with the greatest percentage of fraudulent transfers – as high as 26% in Q1 2020 – however, the lowest average dollar amount, indicating fraudsters use it quite frequently for lower value transfers. The value of fraudulent transfers is the greatest on OS X and Windows, suggesting that fraudsters make their most costly attacks through desktop.

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