Canadian Retailer - Holiday 2016 - 26

LOSS ANALYSIS

fraudulent chargebacks and fraudulent payment
schemes. LexisNexis pegs shrink associated
with fraud at 1.47 per cent of revenue, a number
the company says is growing because of aggressive criminality and the ineffective prevention
measures enacted by retailers. Retailers, the survey shows, are increasingly unable to identify
the methods fraudsters use to rip them off. Many
are unable to identify and block fraudulent transactions, and many more manually review transactions, meaning that most only review 20 per
cent of online sales-leaving a lot of opportunity

pens, the criminals move their activities into
another category of retail, another price band,
another target.
Triangulation fraud, conducted primarily online, is just the latest scam retailers must manage. In this form of fraud, a criminal will post an
advertisement for product X, on one of the many
online marketplaces. A legitimate customer will
see the product, selling at cut-rate prices, and
make the purchase. The criminal collects the
payment from the legitimate customers and
uses a stolen credit card to purchase and ship the
product from a legitim"If business wants to understand risk and exposure, ate retailer. The customer
receives the product, the
they need to understand losses and take all forms
criminal takes the payof loss into consideration. They need to look at the ment, and the retailer later
discovers a fraudulent
whole package, not the shrink line."
card was used to purchase
- STEPHEN O'KEEFE, Gristmill Solutions
the product. Now the refor fraudulent transactions to slither past.
tailer must eat the loss and the reputation of the
Complex fraud
customer who bought the product is tarred.
Michael Graff is a Risk Manager at Radial. He
Graff says online fraud touches every retailsays he "fights criminals with data" from his data er-whether they know it or not.
centre in King of Prussia, Pennsylvania.
"In e-commerce, you have a fraudulent probThe data pouring through Radial's data centre lem if you have a chargerepresents online sales. As a merchant of record, back problem," says
Radial's job is to filter fraudulent transactions Graff. "But you also have
from legitimate transactions-they see where the a fraud problem if you
Average loss per infraud happens. The job is, Graff says, "complex"- have a low approval rate."
cident of shoplifting
in 2015
complex because so many
From Graff's perspecfraudsters have moved
tive, fraud is increasing,
their schemes from bricksand retailers should view
%
and-mortar
to
online
current shrink rates with
Average cost of
stores. These "technologicsuspicion. "I would be
armed robberies in
al fraudsters" have shifted
extremely surprised if
the U.S. in 2015
to online targets because
anybody says shrink is
Percentage of
retailers and credit card
going down if they have taken into account the
retailers reporting
increases in overall
companies have made
full view of online fraud across all industries," he
shrink in 2015
credit card fraud much
says.
more difficult, thanks to chip and pin technology.
"Shrink is morphing. It's changing from bricksOnline, retailers are still soft targets for sophisti- and-mortar to the e-commerce world, changing
cated, organized criminal bands.
from theft in stores to credit card fraud, and it's
"In e-commerce fraud, criminals are techno- hiding itself with theft from people's porches
logically advanced, well-funded, and always that shows up as chargeback claims when reallooking for fraud," says Graff.
ly it's not a customer service issue-it's a theftLike a disease, the technological criminals fraud issue."
move from store to store, committing fraud until
And this point-of-view may provide a solution to
retailers notice and shut it down. When that hap- how to measure shrink online: to call a theft theft,
account for it as theft, and respond to it as theft.

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CANADIAN RETAILER | The Loss Prevention Issue

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