SMB Merchants Are Too Complacent When it Comes to Payment Fraud

According to the latest figures, e-commerce merchants around the globe are expected to lose more than $130 billion in the next five years due to “card not present” (CNP) fraud. Despite the scale of the problem, it's clear that many merchants in North America are failing to invest in the tools they need to safeguard against payment fraud. This seems to be particularly true of small and midsized businesses (SMBs).

According to a new study by Emailage of more than 1,000 SMBs — including e-commerce merchants — across North America, nearly half (48.4 percent) don’t believe they are “big enough” to be targeted by fraudsters. More than a third (38 percent) don’t see fraud as a top business concern.

From this research, it's evident that merchants have a false sense of security, which could mean they're putting their business profits and their customers’ financial well-being at risk.

Impact of Inaction

The result of this apathy couldn't be more clear, especially for the continent’s smaller merchants. According to Emailage’s research, in the last 12 months, companies with fewer than 49 employees were hit particularly hard by fraud, reporting an average loss of $37,258.14 each to criminal activity. Meanwhile, fraud losses reported by larger businesses in the U.S. averaged $26,640.40 and $14,673 in Canada.

So, why are SMBs complacent?

There's a false perception regarding return on investment held by many small digital merchants, which leads them to neglect payment fraud. If a company hasn’t yet been a victim of fraud, then it may not see it as an urgent issue that could impact profit margins.

However, by failing to take the right precautions, SMB merchants can make themselves an even more attractive target for sophisticated cybercriminals than their larger competitors. Worse, they could well find themselves targeted by multiple fraudsters, significantly increasing their fraud losses.

Prevention is Key

With the amount of money stolen in a single attack often outweighing the outlay for a robust new anti-fraud product, it's clear that investment in the right fraud prevention solution is wise for any business.

Key to any merchant’s fraud prevention processes should be the inclusion of accurate customer identity verification. This type of solution can authenticate a purchase to ensure it isn’t being made without the account holder’s knowledge.

One increasingly popular approach for customer authentication is the use of a customer's email address to confirm and verify their identity. Email is a unique identifier that can be used for far more than just marketing. A staggering 91 percent of email users keep the same email address for at least three years, and 51 percent keep the same email address for over 10 years. This represents a vast amount of metadata that can be analyzed and put to great use in the fight against online fraudsters.

Email risk assessment solutions harness multiple data points to segment fraudsters from genuine customers without impacting customer experience. As such, they create an effective “zero friction” first layer of fraud prevention.

By making use of such solutions, SMB online merchants can take steps to protect themselves and their customers from fraud without the need for other complex, manual or costly verification steps. In doing so, they can protect profit margins, boosting their business growth.

Time to Act

Fraudsters don’t discriminate when it comes to their victims. Even the smallest digital merchants are vulnerable to CNP fraud. SMB owners need to invest now in robust customer authentication solutions.

By talking to fraud prevention experts, SMBs can identify the right technologies for their needs, taking a key step to safeguarding their business into the future.

To find out more about why SMBs need to invest in fraud prevention, read Emailage’s report, Size doesn’t matter: Why fraud prevention is a strategic investment for SMBs.

Rei Carvalho is the CEO of Emailage, a global fraud prevention leader.