Every Rs 1,000 lost to fraud in India costs firms Rs 4,000: LexisNexis

Fraud has increased for 54% of Indian organisations year-on-year, according to LexisNexis True Cost of Fraud Study - Asia Pacific

Customers and businesses are increasingly bearing the brunt of rising fraud costs, with 54% of companies reporting an increase in fraud in 2023, according to a survey released on Monday. The LexisNexis True Cost of Fraud Study – Asia Pacific reveals that organisations incur an average cost of Rs 4 (Rs 3.07 for retailers and Rs 4.64 for financial institutions) for every rupee lost to fraud.

The annual report, compiled by Forrester Consulting, indicates that businesses in the Asia Pacific region (APAC) now face a cost of fraud that is nearly four times the actual amount lost in fraudulent transactions. These costs include not only the direct financial losses from fraud but also internal labour expenses, external costs, legal fees, recovery charges, and the costs related to replacing or redistributing lost or stolen merchandise.

Impact on Indian businesses

Indian businesses are effectively paying four times the actual value of fraudulent transactions. For instance, a fraudulent transaction worth Rs 1,000 costs businesses an average of Rs 4,000 to address the losses incurred, which cover external expenses, interest, fees, and the costs of replacing or redistributing lost or stolen items.

How does it affect customers in India?

Imagine you obtained a credit card from a bank, only to be deceived due to a financial fraud. Would you continue to use that credit card or purchase any other product from that bank? Most likely not. 

A LexisNexis survey reveals that 77% of respondents reported that fraud negatively impacts customer satisfaction, while 78% observed a detrimental effect on customer conversion rates, both figures exceeding the APAC average.

— Fraud has increased for 54% of Indian organisations year-on-year.

— In APAC, digital channels account for more fraud losses than physical channels.

— Four in five Indian organisations say fraud is affecting their customer conversion rates.

Double-edged sword of digitalisation: As businesses and consumers increasingly engage online, cybercriminals find ample opportunities to exploit these digital, cross-border transactions. The anonymity provided by digital platforms facilitates fast and often untraceable fraudulent activities. Moreover, the advent of technologies such as artificial intelligence enhances the capabilities of cybercriminals, broadening their scope to exploit both consumers and businesses effectively.

Across the region, digital channels account for 51% of overall fraud losses.

Digital channels

Online LexisNexis 31%

Mobile — 20%

Non-digital channels

Physical/in-store — 25%

Telephone/contact centre — 20%

Others — 4%

Share of fraud traced back to different payment methods

Credit transactions — 25%

Debit transactions — 22%

Traditional — 19%

Crypto — 8%

Evolution of criminal tactics

In the Asia-Pacific region, the stage of the customer journey experiencing the highest fraud losses is during new account creation.

This phase poses significant challenges for financial institutions (46%) and retailers (44%). Criminals are taking advantage of the increasing shift towards digital banking and commerce. They employ stolen or synthetic identities to set up fraudulent accounts, capitalising on the growing trend.

Cameron Church, Director of Fraud and Identity at LexisNexis Risk Solutions in APAC, highlights the evolving nature of fraud: "It is self-evident that new forms of fraud increase the risk of financial losses for consumers and businesses. The challenges for businesses are amplified by the fraud multiplier effect, where the losses sustained by organisations continue to escalate and significantly exceed the initial amount lost in any transaction. Preventing fraud necessitates a multi-layered approach throughout the customer journey."

Sector-wise fraud types

Financial services

Scams — 60%

Synthetic identity fraud — 54%

First-party fraud — 52%

Third-party fraud — 49%

Third-party account takeover — 49%

Retail

Friendly fraud — 43%

First-party fraud — 41%

Third-party identity fraud — 41%

Synthetic identity fraud — 40%

Fraudulent request for return/refund — 40%

Fraudulent chargebacks and promotion fraud in APAC

Within APAC, Australia has experienced the most significant increase in fraudulent chargebacks, with individuals falsely disputing legitimate transactions to secure refunds. Hong Kong and India are witnessing a rise in promotion fraud. In Indonesia, due to the widespread adoption of digital wallets, there has been a notable increase in fraud related to digital wallet and mobile transactions, according to LexisNexis.

Evolving fraud management practices

Criminals are continually innovating, which means that fraud and its associated costs represent evolving threats that cannot be easily mitigated. For example, new payment methods open up fresh opportunities for fraudsters to target vulnerabilities within the retail sector. Meanwhile, financial institutions are noting an uptick in identity theft, scams, and digital wallet fraud, reflecting the dynamic and persistent challenges in managing fraud risks.