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Consumers and Retail Fraud in Context

Gary Satanovsky

As we mentioned in our previous post, the impact of retail fraud on businesses and financial institutions goes far beyond merely losing merchandise and money to unauthorized transactions. A recently released Lexis-Nexis retail fraud study found that customers whose accounts were hijacked by fraudsters are likely as a result to avoid shopping at the stores where their stolen accounts were used, and switch away from the bank or credit union that was compromised.

fraud prevention

This concept is rather new, and for business owners unaccustomed to thinking of customer attrition arising from fraud it is rather hard to grasp.   To help illustrate the idea a little further, we decided to draw on a  recent instance of fraud, the case of Thanh Van Tran, who was caught with fake credit cards at an upscale shopping center in Orange County, California. Tran, at the time of his arrest, had six credit cards on him, all linked to stolen identities. He allegedly used them for large purchases at Macy's, Bloomingdale's and other high-end fashion stores at the Fashion Island mall in Newport beach.

Once Tran was arrested, the counterfeit credit cards were confiscated and closed, and his victims restored any losses they may have suffered through his crimes. Case closed and everything back to status quo, right? Unfortunately, no. Even after Tran's victims get their stolen money back, they would continue to be very cautious about shopping at Macy's or Bloomingdale's or any of the other retail fraudstores where the fraud occurred. A full 36% of fraud victims surveyed by Lexis-Nexis reported this attitude towards the stores that accepted fake credit cards, and notably their attitude was irrespective of where the credit card info was first stolen; only where it was used. In other words, the merchant that accepts the counterfeit card is the one that suffers.

A further 17% of fraud victims cited in the study said they would switch their financial institution as a result – and 27% said they would spend less money overall. The effect of Tran's fraud would manifest with fewer shoppers at the stores where he used his counterfeit cards, and likely at the mall as a whole. Worse still, many of the victims deciding to continue shopping at those stores would bring in less business. It is the fraud victim's equivalent of “once bitten, twice shy,” and with over 11 million identity thefts last year (and the number widely expected to increase), the losses can add up – fast.

If there is a general take-away from this particular aspect of the Lexis-Nexis report, it is that all merchants and financial institutions have a direct financial motivation to want to reduce credit card fraud and protect private financial data. Even if your organization has rock-solid PCI compliance and data protections in place, you might still suffer business loss if your point-of-transaction procedures are permeable and allow fraudulent card use at the time of purchase. These losses can occur not only from the actual “hard dollar” amounts of the fraudulent event, but from the loss of future revenues resulting from victims’ decision NOT to use your services because they are angry or afraid.


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