Many small businesses in 2010 were hit particularly hard by fraud-related costs, suggesting financial institutions should do more to educate their small-business clients on fraud-prevention strategies, new research suggests.
For its research, Pleasanton, Calif.-based Javelin Strategy & Research surveyed by phone in November 5,004 U.S. consumers, 900 of whom owned a small business.
The fraud rate among small businesses, defined as those with one to 10 employees, decreased 3.3 percentage points, to 4.1% from 7.4% in 2009, the research found. Fraud losses totaled about $8 billion last year, with banks, merchants and other financial providers absorbing around $5.43 billion and consumers absorbing some $2.61 billion.
Fraudsters target small businesses because “they believe that is where the money is” and because most small-business owners do not have sophisticated technology or a separate information-technology department to help combat fraud, Philip Blank, a Javelin senior analyst, tells PaymentsSource.
Small businesses also are an attractive target because they conduct transactions spanning both business and personal accounts, he says.
When small businesses incur a fraud loss, so do financial institutions and other financial providers, Blank says. And that means they lose money and, potentially, customers, he says.
“The industry only focuses on the amount of the fraud, not the total cost of the fraud loss. This is the first time we have been able to document the amount from loss,” Blank adds.
When consumers fall victim to fraud at a particular retailer, many will never make a purchase with that merchant again, Blank says. “Based on our research, about one in three consumers who experience fraud at a specific retailer will never go back,” he notes.
About 21% of the small-business owner respondents said they also switched credit card issuers after being victims of fraud, while 18% switched their banks or credit unions, according to Javelin.
Subsequently, financial institutions and other financial providers should do more to educate their small-business clients about ways to prevent fraud, Blank says, suggesting they also provide small-business owners with incentives to make changes to reduce their fraud risks.
For example, financial institutions may offer discounts on fraud-prevention software to encourage client use or offer their small-business clients using such software special privileges, such as higher daily transaction limits, he says. Some financial institutions may limit clients that own small businesses but lack fraud-prevention services to $500 per day in transactions, while the limit for owners using such services would be higher, Blank explains.
What do you think about this? Send us your feedback.
