The British Retail Consortium (BRC) has released the findings of their first e-crime study. The study is based on responses to a quantitative survey conducted between April and May 2012. Respondents were members of the BRC drawn from a selection of key retailing types including supermarkets, department stores, fashion, health and beauty and mixed retail. The retailers questioned constitute around 45 per cent of the UK retail sector by turnover.
The headline finding is the total cost of e-crime to the retail sector was £205.4 million in 2011-12
This estimate comprises three main components:
1. E-crime Overall. The UK retail sector lost £77.3million as a result of the direct costs of e-crime.
2. Security Data, provided by retailers questioned in this survey suggests that, in 2011-12, at least £16.5 million was spent by the retail sector to provide better protective security for customers against e-crime. This figure excludes payments to banks for systems such as 3D Secure and ‘chargebacks’.
3. Lost Revenue. Estimated losses in revenue experienced as a result of legitimate business being rejected through online fraud prevention measures came to £111.6 million in 2011-12.
The key components making up the direct costs of e-crime were:
- Identification-Related Frauds such as account takeovers which were the most costly variety of online fraud for retailers, resulting in at least £20 million of losses in 2011-12
- Card and Card Not Present Frauds which were the next most costly variety, resulting in a minimum of £15 million of losses to the sector in this period
- Refund Frauds which produced £1.2 million in known losses
The costs of e-crime to the retail sector are further inflated by the need to guard or restore systems against other kinds of threat such as malware, Distributed Denial of Service (DDoS) attacks or hacking. Since retailers do not yet collect precise data on this type of compromise to their systems, the research was unable to derive an overall cost estimate for these losses.
However, the research did find that repairing or restoring systems after DDoS attacks alone now costs up to £100,000 on average. Once these other varieties of threat are factored in, the true cost of e-crime to the retail sector is likely to be far higher than the estimate provided above.
E-Crime – The Emerging Threat
- The most common fraud experienced by retailers in 2011-12 was Card Not Present fraud, with nearly 80% of UK retailers questioned in the survey stating that this was now common or very common.
- Identification-Related Fraud was the second most common category with around 50% of retailers saying that the use of false identification was now a common or very common tactic in attempts to defraud their online systems.
- If other misuses of personal identification (such as account-takeover frauds) are included under the heading of Identification-Related Fraud, then this emerges as the most prevalent category - with around 78 per cent of UK retailers reporting such frauds to be common or very common.
- Increased threats to e-commerce were also found to be linked to disruptions caused by attacks upon online trading systems. For example, over 20% of retailers reported that Distributed Denial of Service (DDoS) attacks caused serious or very serious disruptions to their systems in the period surveyed.
- Phishing appears to be a particular problem for UK retailers, with some respondents indicating that a single phishing attack within the period surveyed could have cost the company concerned up to £2 million to deal with. The negative impacts of phishing upon retail reflect a global trend which has indicated that, after US companies, UK brands and companies are now the second most targeted globally (RSA 2012). Find a link to 10 RSA monthly summaries at the bottom of the post.
- Although more sophisticated attacks like phishing or hacking are often carried out by perpetrators from outside the UK, retailers questioned in this survey suggested that the majority of frauds continue to be perpetrated domestically. Retailers reported that around 86% of attacks originate within the UK
- The extent and sophistication of the threat is likely to be due to the high level of online sales in the UK.
- 75% of respondents reported that over 80 per cent of their sales occurred in the UK. Nevertheless, the research found that retailers were often unclear about the breakdown between UK and foreign originated e-crime perpetrated against them.
- When combined with the difficulties retailers face in tracing the origin of e-crime and the lack of intelligence from law enforcement, the level of e-crime originating outside the UK is likely to be far higher than the estimates provided in this research.
Managing e-crime – Security and Effectiveness
- 8% of the current losses from e-crime relate to security costs, with the survey indicating that firms across the retail sector spent at least £16.5 million on internal and external security provision.
- The most significant component of this figure was staffing security systems which cost the sector at least £10.5 million in 2011-12.
- Investment in security technology amounted to around £6 million for the same period.
- Online security is managed through both internal and external provisions with third party screening continuing to be the most common, and most expensive, option. The data was not sufficiently robust to enable an overall projection of costs for outsourcing security provision to third parties. However some respondents indicated that this could be as high as 7 pence per transaction.
- 71% of respondents supplemented third party screening with other automated methods of security such as 3D Secure.
- 71% of retailers were also deploying the Address Verification System (AVS).
- 78% of respondents stating that they use customer order history to make online purchases more secure.
- 64% of respondents also contact the customer or card issuer directly to verify the details of a purchase.
- 50% of respondents were contemplating investment in new methods or technologies in the future.
- This increasing expenditure will inevitably lead to higher costs than those outlined within this research.
Law Enforcement Responses and Government Support
Respondents highlighted a number of concerns around the policing of e-crime with the survey finding uniformly low levels of satisfaction with current police responses to retail e-crime.
- At least half of retailers said they were dissatisfied with current responses
- Over a quarter of the total expressing strong dissatisfaction
- 14% indicated that they were very satisfied with current law enforcement support
The reason for such low levels of reporting and satisfaction was that e-crime is not considered to be a priority by many police forces. There were also concerns that national units such as the National Fraud Intelligence Bureau or the Police Central e-Crime Unit (PCeU) do not have the resources or capacity necessary to carry out further investigations.
The research found that there were significantly low levels of reporting.
- 60% of retailers questioned said they would be unlikely to report any more than 10% of e-crimes to the police. This was largely due to retailers’ concerns with the law enforcement approach to policing e-crime offences.
Of the frauds that were reported to the police, Card Not Present Frauds were the most common
- 36% of respondents indicating that these would be reported
- 14% said that they would report other kinds of fraud such as Credit Fraud (by Account Takeover).
Retailers also raised the need for greater government support
- 57% of respondents expressed strong or moderate dissatisfaction with current support from government
- Many retailers felt that there was scope for government to offer more support to UK businesses by informing them about potential threats to their business and providing guidance or advice on how best to mitigate these threats
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.”
Find 10 monthly RSA Online Fraud report summaries here.