E-crime is biggest emerging threat to retailers, finds new study
The British Retail Consortium's first e-crime study published this week estimates that e-crime cost retailers a total of £205.4 million in 2011-12. This includes £77.3 million in losses from frauds as well as costs relating to prevention measures and lost business following their introduction.
The BRC said that in proportion to the total value of sales, e-crime is twice as costly as overall retail crime. At £205.4 million, e-crime represented 0.75% of the £28 billion of online retail sales in 2011. The £1.4 billion cost of retail crime as a whole was 0.36% of the £303 billion value of all retail sales.
The most expensive type of e-crime for retailers was personal identification-related frauds. These produced £20 million of losses in 2011-12. Card fraud was in second place, with £15 million losses to retailers during the same period. Refund frauds were responsible for losses of £1.2 million.
Other categories of e-crime shown to be a particular problem for UK retailers included phishing, the setting up of bogus websites. After the USA, UK brands and companies are the second most targeted in the world.
Retailers also lost £111.6 million to e-crime as a result of genuine business being rejected because of crime-prevention measures. Honest customers can often be deterred from continuing with an online purchase if they regard the additional online security measures as cumbersome.
As the UK has the biggest internet spend per-capita of any nation and 11% of global internet retail sales, the BRC is arguing that law enforcers need to take e -crime more seriously if the sector is to maximise its contribution to economic growth.
However, the organisation found that many retailers lacked confidence in the official response to e-crime. Of those questioned in the BRC survey, 60% said it was unlikely they would report any more than 10% of e-crimes to police.
The BRC is calling for consistency on reporting, recording and investigating e-crime across the country and more police resourcing to be directed to e-crime.
British Retail Consortium Director General Stephen Robertson, said: "The rapid growth of e-commerce in the UK shows it offers great benefits for customers but also new opportunities for criminals.
"Online retailing has the potential for huge future commercial expansion but Government and police need to take e-crime more seriously if the sector is to maximise its contribution to national economic growth.
"Retailers are investing significantly to protect customers and reduce the costs of e-crime but law makers and enforcers need to show a similarly strong commitment.
"This first comprehensive survey assessing the make-up and scale of e-crime shows where efforts need to be directed.
"Law enforcement and the Government need to work with us to develop a consistent, centralised method for reporting and investigating e-crime and resources must be directed to e-crime in line with the emerging threat. This will encourage retailers to report more offences and allow the police to better identify and combat new threats."
Jon Copestake, retail analyst from the Economist Intelligence Unit commented: “E-crime is an increasing challenge for UK retailers, especially as online sales continue to chart double digit growth. However, it is telling that the figures reported show that the cost of direct fraud is dwarfed by the loss of business related to security measures. E-crime itself cost £77.3m, or around 0.25% of online retail sales, but losses due to crime prevention measures were £111.6m, closer to 0.4%. This reflects the tightrope that retailers are walking to get the security mix right in policing transactions. If measures are too soft then they face exposure to e-crime, but if they are too rigid then they face alienating genuine customers."
Paul Worth, partner, specialising in fraud and financial crime at international law firm Eversheds comments, “Online fraudsters are becoming increasingly sophisticated and more prolific. This isn’t about a teenager in his/her bedroom; it is organised crime. Account takeover frauds and e-crime generally are extremely difficult for the police to investigate and prosecute. The fraudsters are very often part of an international network and the proceeds of crime will be quickly laundered around the globe. The true identity of the fraudsters and their location is generally very difficult to establish.
“With the cutbacks in police finances, it is wishful thinking that more resources will be deployed on financial and economic crime. Police numbers in this area have been scaled back in recent years and it seems unlikely this trend will be reversed in the current climate. Retailers therefore need to be vigilant and will have to continue to invest in systems and controls to minimise losses in this area. Education of consumers is also a key part of the jigsaw.”
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