Businesses in EMEA now bear a cost of fraud that is 3.90 times the face value lost in fraudulent transactions, says LexisNexis Risk Solutions. 

 

Unveiling the findings of its 2023 LexisNexis True Cost of Fraud Study – Europe, Middle East and Africa survey, the firm says in the UAE, 42% of companies reported an increase in fraud in the 12 months prior to the survey, while organisations incur an average cost of AED4.19 ($1.13) (AED3.62 for retailers and AED4.99 for financial institutions) for every dirham lost to fraud. 

 

These costs encompass financial losses due to fraud, as well as internal labor expenses, external costs, interest and fees, along with the expenses associated with replacing or redistributing lost or stolen merchandise. The annual report is based on a commissioned survey conducted by Forrester Consulting. 

 

Innovative fraud attacks

While rapid adoption of digital payments not only improves payment experiences, it also exposes numerous systems and channels to more innovative fraud attacks. 

 

Across EMEA, digital channels account for 52% of overall fraud losses, surpassing physical fraud for the first time. Consequently, cybercriminals exploit the anonymity of digital, cross-border transactions to execute fast and untraceable fraud. Additionally, the rise of scams and the use of technology, such as artificial intelligence (AI), expands cybercriminals’ ability to exploit both consumers and businesses.

 

The study also reflects the evolution of criminal tactics. More than half (52%) of businesses in EMEA identify the rise of synthetic identities as the primary challenge in customer identity verification. Fraud remains a widespread problem for businesses, exerting pressure not only on financial resources but also impacting overall operational efficiency, customer trust and reputation.

 

"It is self-evident that new forms of fraud increase the risk of financial losses for consumers and businesses,” said Jason Lane-Sellers, director, fraud and identity, EMEA at LexisNexis Risk Solutions. "The issues facing businesses become even more challenging due to the fraud multiplier effect, where the losses experienced by organisations continue to increase and far exceed the lost face value in any transaction. Preventing fraud requires a multi-layered approach throughout the customer journey."

 

Key findings

Commercial Impact: Fraud significantly affects how customers perceive and interact with businesses. Ninety-two percent (92%) of UAE respondents report that fraud has influenced customer satisfaction compared to 75% across EMEA. Ninety-six percent (96%) notice its impact on customer conversion, higher than the 71% recorded in EMEA. These findings demonstrate that the UAE has a particular sensitivity to customer experience. Any impact of fraud or fraud prevention techniques can affect customer satisfaction and lead to broader impacts on companies’ bottom line, so balancing prevention with appropriate customer experience controls is essential.

 

Evolving Fraud Management Practices: Criminals constantly innovate. This dynamic nature of criminal behavior means that fraud and its associated costs are not static threats that businesses can simply diminish. For instance, new payment methods provide fraudsters with opportunities to exploit vulnerabilities in the retail sector. Financial institutions are realising increasing trends in identity theft, scams and digital wallet fraud.

 

Moving Forward: Given the rising threat of fraud and cybersecurity risks, organisations should embrace forward-thinking fraud management and authentication solutions. This involves leveraging the capabilities of technologies such as AI, machine learning, and biometric and behaviour-based authentication methods.

 

Methodology: The True Cost of Fraud Study – Europe, Middle East and Africa conducted a survey of 1,845 global fraud management decision-makers at financial institutions and retail companies, including 55 in the UAE. Data collection and survey questions reference a 12-month period. 

 

The study leverages data and analysis to understand the current state of fraud and the challenges associated with digital payments in emerging markets. This information comes from a commissioned study conducted by Forrester Consulting on behalf of LexisNexis Risk Solutions in August 2023.--TradeArabia News Service