Every rupee lost to fraud in India costs firms ₹4, shows study

In India, over half (54%) of businesses reported an increase in fraud in past 12 months, while organisations incur an average cost of ₹4.00 (₹3.07 for retailers and ₹4.64 for financial institutions) for every Indian rupee lost to fraud, according to a new study published today.

The report, jointly conducted by Forrester Consulting and data analytics firm LexisNexis, reveals that businesses in APAC now bear a cost of fraud 3.95 times the nominal value lost in fraudulent transactions.

These costs include financial losses due to fraud, as well as internal labour costs, external costs, legal costs and recovery fees, along with costs associated with replacing or redistributing lost or stolen goods. Seventy-seven per cent (77%) of Indian respondents report that fraud has impacted customer satisfaction, compared to 72% in APAC. Seventy-eight per cent (78%) see their impact on customer conversion, higher than APAC’s 75%.

While the rapid adoption of digital payments not only improves payment experiences but also exposes numerous systems and channels to more innovative fraud attacks. In APAC, digital channels account for 51% of total fraud losses, surpassing physical fraud for the first time. Consequently, cybercriminals exploit the anonymity of cross-border digital transactions to execute fast and untraceable fraud. In addition, the rise of scams and the use of technologies such as artificial intelligence (AI) expands the ability of cybercriminals to exploit both consumers and businesses.

The study also reflects the evolution of criminal tactics. In APAC, the customer journey stage with the highest fraud losses is new account creation, presenting the biggest challenge for both financial institutions (46%) and retailers (44%). Criminals are exploiting the growing popularity of digital banking and digital commerce by using stolen or synthetic identities to open fraudulent accounts.

“New forms of fraud increase the risk of financial loss for consumers and businesses,” said Cameron Church, director of fraud and identity, APAC at LexisNexis Risk Solutions. That said, fraud and the associated costs are not static threats that companies can simply mitigate. For example, new payment methods provide opportunities for fraudsters to exploit vulnerabilities in the retail sector.

“The issues facing businesses are made even more challenging by the multiplier effect of fraud, where the losses suffered by organisations continue to grow and far exceed the nominal value lost in any transaction. Fraud prevention requires a multi-layered approach throughout the customer journey.”

In March, a report by identity security platform IDfy said that banking, financial services, insurance, e-commerce, and staffing sectors were most susceptible to employment fraud with 8% of the employees failing background verification checks.

In September last year, the Future Crime Research Foundation (FCRF), a non-profit startup incubated at the Indian Institute of Technology (IIT)-Kanpur showed a phenomenal rise in online financial fraud cases, including those involving quick response (QR) codes, one-time passwords (OTPs) and debit/credit cards transactions, which account for close to 77.5% of cyber-crimes in India. 

Given the growing threat of fraud and cybersecurity risks, LexisNexis concludes that organisations should adopt forward-thinking fraud management and authentication solutions, besides harnessing the capabilities of cutting-edge technologies such as AI, machine learning, and biometric and behavioural authentication methods.