Online Payment Fraud In Europe – What Merchants Need To Know

Online payment fraud in Europe continues to rise with Card Not Present (CNP) fraud making up the lion’s share. According to the European Central Bank*, 60% of all card fraud is associated with CNP transactions, and this is predominately for eCommerce or online banking transactions.

What is driving online payment fraud both globally and in Europe?

Ecommerce is a key factor having seen rapid growth in recent years. The ecommerce market in Europe is worth over €500 billion and with this comes an inevitable rise in fraud.

Mcommerce is also a significant driver, responsible for a booming ecommerce landscape especially amongst younger consumers. With the highest mobile penetration rates in the world (129% in Western Europe, 151% in Central and Eastern Europe) online spending on mobiles is on an upward trajectory.

However, mobile devices also offer additional opportunities for fraud and younger consumers are particularly vulnerable – poor password hygiene and less awareness of fraud issues are contributing factors.

Cross border trade is increasing merchants’ exposure to fraud as many look to overseas markets to grow ecommerce revenue. Threats from global cyber criminals and fraudsters naturally have increased as merchants enter new markets. Fraud is 2.5 times higher international markets compared to domestic markets according to a study by legal research firm LexisNexis.

Data breaches have also had an impact; both with cyber criminals obtaining payment card details enabling them to make fraudulent transactions, but also identity theft leading to false bank accounts being created. Increasingly individuals are being targeted for their personal and financial information through phishing emails and social engineering methods. While these techniques are also used to breach company information, there is a growing trend towards more direct payment fraud targeting cardholders.

Data from our partner ACI Worldwide showed that in 2015 fraud attempts increased to 1 in 67 transactions globally. The cost to merchants varies between 0.3% and 3% of revenues, depending on the vertical. Some verticals have a higher risk of fraud, such as those in digital entertainments and services. Mcommerce and international merchants also have a higher risk for the reasons outlined above.

Online Payment Fraud In Europe

Figures from FICO’s Evolution Of Card Fraud In Europe 2015 (most recent data), may paint a gloomy picture of online card fraud across Europe. However, it should be noted that whilst fraud levels and fraud losses are on the increase, so is card spend.

Most notably 2015 saw an 18% increase of card fraud in the UK (£88.5 million of losses), skewing European figures significantly. Half of this growth relates directly to the growth in eCommerce, which is maturing market in the UK, and 75% was CNP fraud. As the rest of Europe embraces online shopping there are lessons to be learnt from the UK experience.

online payment fraud

While Germany, another mature ecommerce market, boasts stable fraud rates CNP fraud mirrors that in the UK. CNP fraud continues to rise now accounting for 70% of online card fraud in this market.

What Can Merchants Do?

A robust approach to fraud detection and prevention is needed, including partnering with fraud and online payment specialists. There are many tools available that can reduce your exposure to fraud, but a localised approach is needed.

One technological development that is increasingly being used to fight fraud is tokenisation – download our whitepaper for more – but this needs to be used in combination with other FDP solutions.

A localised approach to payment methods can also help reduce the risk of fraud, for example by not offering certain payment methods in specific regions, or implementing more aggressive FDP solutions for high risk countries.

To explore the issues outlined in this post in more detail, or to speak to our fraud and payment specialists about your specific risk, vertical and market, please get in touch. Call +44(0)808 159 3453 or email [email protected]

Download Payment Tokenisation – The Future of Payment Fraud Prevention here.

* European Central Bank, 4th Report on Card Fraud, July 2015