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Is online payment fraud inevitable?

Consumers in Europe and North America believe online and mobile payments are inherently risky. But do the numbers back this up? Or is it just a perception issue the payments industry needs to address?

For many consumers, the risk of fraud has become a fact of life. Part and parcel of living in a digital world. So much so that, when we interviewed 5,056 individuals for our Lost In Transaction: Payment Trends in 2018 report, 51% told us they think a certain level of risk of fraud is inevitable when shopping online.

The percentage is especially high in the UK and North America: 65% of Brits, 64% of Canadians and a staggering 70% of Americans believe online and mobile payments are inherently risky. But do the numbers back this up? Or is it just a perception issue the payments industry needs to address?

Making sense of the numbers: is online fraud as pervasive as consumers think?

Online fraud is as old as the internet itself. But according to our research — and despite continued efforts to fight it — it seems to be on an upward trajectory, at least in Canada and the UK.

In Lost in Transaction: Payment Trends 2018, the number of consumers that told us they were the victims of fraud in Canada during the previous 12 months jumped to 29%: a 7% increase on our research from the previous year. And each case caused an average loss of $317. Meanwhile, fraud in the UK rose from 27% to 33% — a slightly lower but no less significant 6% — and cost victims an average of £180 per incident. In the US, fraud went down by 3%, bucking the trend. But at 34%, it’s still the highest incidence of fraud out of the five countries we surveyed.

This means consumers’ perceptions are far from being unjustified. In fact, there seems to be a correlation between acceptance of risk and incidence of fraud. The US, which has the highest rate of fraud, also has the highest proportion of consumers who think it’s inevitable. In contrast, Austria — where the incidence of fraud in 2017 was lowest at 21% — consumers are much less accepting: only 26% think online fraud is inevitable.

New tech vs old tech: better the devil you know?

Unsurprisingly, new and, so less familiar technologies are bearing the brunt of consumers’ negative perceptions. And this is hampering mainstream adoption. Case in point, 65% told us they’re unwilling to use voice-activated payments because of concerns about their safety.

Yet, while new technologies can undoubtedly be more vulnerable — 20% of mobile wallet users, for instance, experienced some kind of fraud in 2017 — security issues aren’t exclusive to them.

18% of credit card users, 15% of bank card users and 15% of Paypal and other online wallet users also experienced some kind of fraud in 2017. So, while consumers do well to treat newer technologies with caution, the truth is that, as things stand, even supposedly tried and tested payment methods aren’t 100% foolproof.

Counting the cost

While these stats make for grim reading, there’s an upside. Typically, the impact on consumers is limited. Our research shows that 70% of those who fall victim to fraud eventually get their money back. And, in the UK and North America, this happens sooner rather than later: 60% of Americans, 64% of Canadians and 69% of Brits recover their money within a week.

Consumers are also more aware of fraud than ever before. And they take active steps to protect themselves. 74% told us they avoid shopping online if they’re connected to an unsecured network. Similarly, they’ll avoid entering their payment details on a website they don’t know.

These behaviours show consumers are increasingly educated and empowered. That said, and seeing as more than a quarter of victims of fraud will not recover their money, there’s certainly more that needs to be done.

Lessons from Austria and Germany

While there seems to be a correlation between the incidence of fraud and how accepting people are of its inevitability, this is only one piece of the puzzle. There’s also another important variable.

In Austria and Germany, where fraud is lowest and people are least accepting of it, victims of fraud are also less likely to recover their losses than their British and North American counterparts.

According to our research, in 2017, 38% of German and 39% of Austrian fraud victims were left out of pocket, compared to 30% of Americans and Brits and 25% of Canadians. As a result, Austrians and Germans prefer using online payment methods that don’t require sharing financial details.

Moving ahead: making online payments safer

Payment by invoice is particularly popular: 55% of Austrians and 49% of Germans think it’s safer than other payment methods, including credit cards. Could the adoption of this payment method — and others that don’t require sharing financial details — help curb fraud and address consumer perceptions in the UK and North America too?

Payment by invoice isn’t an unknown quantity in the UK and North America. But it’s also far from being mainstream. In 2017, it made up a mere 5% of online payments in the UK and 4% in the US.

That said, while payment by invoice might not itself have a high adoption rate, there’s no doubt Brits and North Americans are clamouring for more secure payment methods. So much so that 69% of Americans, 67% of Canadians and 64% of Brits told us they feel more comfortable if they don’t have to share financial details when paying online.

Paying online using cash, either via a cash replacement voucher or by ordering online and completing the transaction in cash at a designated pay point, is another alternative option with the benefit of not having to share any financial details online.

And biometrics will also have a significant role to play in reducing the volume of fraud consumers suffer, particularly as more and more spending is carried out on mobile, either through a mobile app, mobile wallet, or mobile browsing. The in-built smartphone technology to carry out fingerprint scanning and facial recognition is a huge step forward in online identification and a quantum improvement in consumer security.  

For merchants and payment services providers, the message is clear. While consumers may tolerate some level of risk, this will only go so far.

Ultimately, no-one wants to be left out of pocket. So, if merchants and payment service providers want to keep their customers happy, they need to give them the right tools to help them protect themselves online. And, increasingly, this means offering payment alternatives that, aside from being convenient, also feel secure.

Want more insights about the latest payment trends? Download our latest Lost in Transaction: Payment Trends 2018 report.