The risk of fraud in the luxury goods sector is increasing as more customers purchase high value goods online.
By 2025, online luxury purchases will be worth $76 billion (Sift), giving increasingly sophisticated criminals good reason to focus their energy on exploiting card-not-present (CNP) transactions in this sector.
By 2030, Nielsen estimates that CNP losses will hit $49.32 billion, suggesting that current fraud prevention measures are simply not good enough
Luxury goods are prime targets because of their high value and desirability. Items, such as limited edition sneakers or iconic designer bags can be resold easily, often for more than they were originally bought. These items can be quickly converted into cash, creating a risk that brands can be used as a vehicle for money laundering.
The financial impact of fraud on luxury brands is substantial. Firstly, if a merchant receives too many chargebacks as a share of total transactions, they can lose their right to process credit card transactions.
Secondly, brands suffer reputational damage and the ability to price high, as the resale of fraudulently acquired goods undermines official retail prices and damages brand integrity.
However, even attempts to fight fraud can be damaging if they are inefficient, especially in the case of false declines, where legitimate transactions are mistakenly blocked. This not only leads to the immediate loss of a sale but potentially the loss of a long-term customer. In the luxury sector, this is particularly problematic as customer-lifetime-value is high .
Solutions to Combat Fraud
To combat these challenges, luxury brands must adopt advanced fraud-fighting technologies, such as Semla. Semla significantly reduces CNP fraud, refund costs & reputational risk by automating CNP due-diligence processes via secure PSD2 processes.
By leveraging secure payment card verification, brands protect themselves, without compromising the premium shopping experience for customers.
However, luxury brands should ensure that they partner with a due-diligence solution that has as high standards as they do. As discussed above, inferior solutions increase false positives, damaging, rather than helping, your brand.
With Semla, false positives are minimised, as accurate payment card verification prevents legitimate orders from being mistakenly declined.
Crucially, implementing robust fraud prevention mechanisms must be done sooner rather than later. By waiting too long, both reputational and financial losses are set to increase.