As Amazon reveals ways in which it has been confronting issues such as retail fraud, LexisNexis, in the fourteenth edition of its annual “True Cost of Fraud Study: E-commerce and Retail Report – U.S. and Canada Edition,” demonstrated merchants in the region incur an average cost of $3 for every $1 of fraud.
A blog post by Dharmesh Mehta, Amazon vice president, Worldwide Selling Partner Services, cited the company’s fourth annual Brand Protection Report in discussing the action of bad players and key ways in which the retailer is responding.
Mehta identified proactive efforts by Amazon to protect its store; development of tools enabling rights owners to partner with the retailer in protecting their brands; advancing means of holding bad actors accountable; and improving customer protection and education.
When it comes to retail crime, Mehta detailed how Amazon is proceeding:
- Innovations in seller vetting to stop bad actors from attempting to create new selling accounts. Amazon’s robust seller verification uses document forgery detection, advanced image and video verification and other technologies to quickly confirm the authenticity of government-issued identity documents and whether they match the individual applying to sell on the retailer’s platform store. Such technologies, coupled with continued innovation in machine learning-based detection are deterring bad actors from attempting to create new Amazon selling accounts. In 2023, Amazon stopped more than 700,000 bad-actor attempts to create new selling accounts before they could list a product for sale.
- Amazon continues to innovate and improve automated brand protections to leverage the latest advances in artificial intelligence and stay ahead of new and emerging bad-actor tactics. The advanced machine learning models use thousands of signals, including data provided by brands enrolled in Amazon’s Brand Registry, to protect customers and brands. In 2023, Amazon capitalized on significant advances in computer vision and large language models to systematically detect many different types of infringement, including improving the company’s ability to accurately detect complex visual intellectual-property infringements of logos, shapes and patterns. Since 2020, while the number of products available for sale in its store has gained significantly, Amazon has experience a more than 30% decrease in the total valid notices of infringement submitted by brands.
- In partnership with brands and law enforcement around the world, Amazon has worked to identify and dismantle counterfeit organizations. Since it launched in 2020, Amazon’s Counterfeit Crimes Unit has pursued more than 21,000 bad actors through litigation and criminal referrals to law enforcement. In 2023, Amazon identified, seized and appropriately disposed of more than seven million counterfeit products worldwide, preventing them from harming customers or being resold elsewhere in the retail supply chain. In addition to the disposal of counterfeit products, Amazon strengthened its cross-border anti-counterfeiting collaboration with brands and Chinese law enforcement in 2023, leading to more than 50 successful raid actions. The collaboration resulted in numerous criminal convictions that produced fines and prison sentences.
- Along with industry experts and associations, Amazon is educating consumers about the danger of purchasing counterfeits. The company continues to explore ways to do deal with such concerns including, for example, a partnership with the International Trademark Association and student organization DECA. In cooperation with them, Amazon launched the Unreal Campaign Challenge, which asked students to produce a 60-second video public service announcement about the dangers of purchasing counterfeits. The Unreal Campaign Challenge reached more than 177,000 global DECA members. The organization recognized the winners at DECA’s annual International Career Development Conference in front of 22,000 students.
In the LexisNexis “True Cost of Fraud” study, more than half of surveyed respondents across North America reported a fraud increase of 6% or more in the 12 months prior, with digital channels responsible for 53% of overall fraud losses.
With the rise of new digital commerce and payment methods, transaction fraud has grown increasingly frequent and sophisticated as 60% of e-commerce merchants and 53% of retailers report an uptick in overall fraud levels. Retailers now identify fraudulent chargebacks as the quickest growing fraud type, LexisNexis maintained, while e-commerce merchants point to identity theft as the fastest increating variety of fraud.
Despite consumer education efforts — with 46% of surveyed merchants stating they’ve made efforts to educate customers about information security and scam protection — the number of consumers falling victim to scams continues to rise. About 34% of fraud losses in North America are now attributed to scams.
The increasing frequency and scale of data breaches that compromise consumer data, including credit and debit card information, as well as their widespread use, contribute the largest share of fraud losses. Under the circumstances, merchants often must prioritize monitoring digital payments and BNPL transactions, as these newer methods already account for 37% of fraud losses.
As to timing, identity theft fraud and fake account registration, particularly in the e-commerce sector, pose significant risks during the new account creation process. Physical retail and e-commerce merchants report that up to 47% of fraud losses stem from the start point.
E-commerce organizations encounter nearly 40% more fraudulent transactions compared to primarily brick-and-mortar retailers, LexisNexis pointed out. The widespread adoption of new payments methods can expose merchants to more frequent and sophisticated fraud attacks. One-fifth of transaction volume today happens via digital payment methods including digital wallets, payment apps, buy now pay later and cryptocurrency. Digital transactions account for more than half of revenue.
The impact of fraud on merchants is multifaceted and can encompass fines, fees, the face value of fraudulent transactions and the costs and efforts associated with replacing lost or stolen merchandise. Organizations are incurring fraud costs three times the actual value lost to fraudsters, but also 75% of survey respondents noted an impact on customer conversion rates. As such, the short and potential long-term effect on the customer experience can have a negative impact on shopper behavior.
Still, retailers face the challenge of balancing customer safety with customer experience while combating new fraud methods and integrating new fraud mitigation capabilities, LexisNexis reported. The increasing consumer adoption of a wide range of payment methods motivates merchants to accept novel payment methods, consequently expanding their potential for attach and increasing fraud risk.
“Striking the right balance between effective fraud management and a seamless customer experience is crucial,” said Kimberly Sutherland, vice president, fraud and identity strategy, LexisNexis Risk Solutions. “It’s essential for merchants to ensure that customer onboarding and payment journeys are as frictionless as possible to prevent shopping abandonment and customer churn. To respond faster to emerging fraud trends and rising consumer expectations, merchants must take a dynamic and agile approach to risk assessment. Capabilities integrated via risk-based workflows, supported by deep troves of identity intelligence and robust linking technology, promote the flexibility necessary for safer and more convenient interactions and transactions.”
