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Merchants Prioritize Customer Experience Over Effective Fraud Prevention Despite Significant Concern for AI-Enabled Fraud Attacks in Digital Transactions

Merchants Prioritize Customer Experience Over Effective Fraud Prevention Despite Significant Concern for AI-Enabled Fraud Attacks in Digital Transactions

New Research from Liminal Forecasts Transaction Fraud Prevention in E-Commerce Market to Grow 11.8% CAGR over the next 4 years, Signaling a Paradigm Shift

The rapid growth in e-commerce transactions has brought a concerning uptick of 80% in fraud attempts, driven by advanced AI technologies and first-party fraud attacks, resulting in substantial financial losses. As the industry battles against this surge in fraud, merchants grapple with the dual challenges of escalating fraud resolution costs and the imperative to deliver a positive digital customer experience.

According to Liminal’s latest research report, the “Market and Buyer’s Guide for Transaction Fraud Prevention in E-Commerce,” over two-thirds of buyers believe that stronger identity verification during account opening will make it tougher for fraudsters to impersonate real customers and lower the risk of identity-related fraud attacks.

In response to these industry dynamics, the market for fraud prevention solutions is rapidly expanding, leading to the emergence of new and existing vendors developing new solutions. Liminal projects a Total Addressable Market (TAM) of $7.9 billion in 2024, which is expected to grow to $12.4 billion by 2028 at a compound annual growth rate (CAGR) of 11.8%.

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Liminal, the leading market intelligence and strategic advisory firm specializing in digital identity and cybersecurity, released its new report, the “Market and Buyer’s Guide for Transaction Fraud Prevention in E-Commerce,” to provide a comprehensive look at transaction fraud prevention from the buyer’s perspective. It sheds light on critical factors, prevalent fraud typologies, market trends, and the need for proactive strategies to stay ahead of evolving tactics.

“Merchants recognize they must reassess their approach to transaction fraud prevention to preserve trust and security in the digital marketplace, but assessing vendors can seem daunting. This decision has far-reaching business impacts, affecting fraud rates, user experience, conversion, and revenue growth. At Liminal, we believe in empowering organizations with market and buyer insights coupled with strategic guidance to navigate this dynamic environment effectively,” said Jennie Berry, President at Liminal.

Before engaging with potential vendors and evaluating their solutions, buyers must clearly understand their internal needs across many different stakeholder groups and find the solution to fit their implementation strategy for function, fit, and scalability. With resources available to shape a request for information (RFI) and tools to help compare product features and functions, finding and selecting the right fraud prevention provider can be eaiser.

In October 2023, Liminal conducted survey research among B2B technology buyers across e-commerce and online retailers in five regions globally, further validated through interviews with business executives and industry experts. The research revealed several key findings:

  • 98% of buyers reported increased AI-enabled fraud attacks on their platforms, yet 73% cited relying on two or more risk-scoring vendors to combat this risk. This highlights the need for dedicated measures to counter AI-driven attacks.

  • The cost of solving fraud is becoming more expensive due to increased fraud risks and the general rise in prices, particularly impacting smaller enterprises. About 54% of buyers observed price increases in the past year, and 66% anticipate further increases.

  • 62% of buyers placed a higher priority on delivering a positive user experience and minimizing false declines, even if it meant allowing some fraudulent transactions. Despite the importance of reducing fraud rates, buyers are seeking solutions to allow more transactions.

  • A rising concern is first-party fraud, affecting 66% of merchants, with chargebacks and return fraud being significant issues. Notably, 1 in 3 consumers cite committing first-party fraud, leading to substantial financial losses.

  • 68% of buyers believe that more robust identity verification protocols at account opening will make it harder for fraudsters to impersonate legitimate customers and reduce the risk of identity-related fraud attacks.

Liminal is a market intelligence and strategic advisory firm specializing in digital identity and cybersecurity solutions within the fintech and payments sector while also catering to the private equity and venture capital community. Since 2016, Liminal has offered strategic and analytical services supporting executive decision-making at all stages of product or business lifecycles. We advise some of the world’s most prominent business leaders, investors, and government officials on building, acquiring, and investing in the next generation of digital identity solutions and technologies.

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