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CNP Merchants Brace for Increased Fraud Post-EMV

A new study from Vesta and Javelin finds similarities and differences between merchants selling digital goods, physical goods or both when it comes to expectations for how fraud trends may change following the roll-out of EMV. More than half of all merchants worried about growing fraud cite EMV as a cause for this concern, but digital goods merchants are more likely to increase fraud and chargeback management spending over the next year relative to their counterparts.

The new survey and report produced by Vesta Corporation and Javelin Strategy & Research, titled The Impact of Fraud and Chargeback Management on Operations, interviewed nearly 400 merchants with over $1 million in annual revenues selling only digital goods, only physical goods or both (hybrid merchants). The survey highlighted some trends and differences between these three types of merchants, with information on what fraud trends they are expecting or planning for and how budgets are being allocated accordingly.

Nearly half of all merchants surveyed expect to increase expenditure on fraud and chargeback management over the next twelve months, while this skewed to over 50 percent for merchants selling digital goods. Just 37 percent of merchants selling physical goods only expect to increase risk spending, compared to 51 percent of merchants only selling digital goods and 48 percent of hybrid merchants selling both digital and physical goods. When asked why fraud and chargeback expenditures would increase in the next year more than half stated because fraud is on the rise.

Digital goods and hybrid merchants are also much more likely to report they are concerned about increased CNP fraud over the past year. Only 29 percent of merchants selling physical goods expressed this concern, significantly less than the 45 percent of digital goods merchants and 49 percent of hybrid merchants that share this sentiment. When these merchants were then asked why they have concerns about CNP fraud increasing over the past 12 months, more than half cited the roll-out of EMV. This includes 58 percent of merchants only selling tangible goods, 55 percent of merchants selling digital goods only, and 49 percent of merchants selling both.

Concerns around increasing fraud, and therefore risk and chargeback management spending, in a post-EMV world are certainly warranted. According to projections from Javelin, card fraud losses at the point-of-sale are expected to steadily decline from $6 billion in 2014 to $5 billion in 2018. Card Not Present channel fraud, however, is expected to nearly double from $10 billion to $19 billion over that same time frame.

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