The Cost of Payment Fraud for Small Business


    What is the cost of fraud for the average small business owner? In this article, find out the true cost that fraud can hold for small to mid-sized online merchants.

    Even with almost four years of separation from COVID-19, the eCommerce industry and digital spending is STILL accelerating. According to a Forbes article, online spending skyrocketed by 55% as a result of the pandemic (and still growing). Unfortunately, the opportunity for payment fraud in online purchases moves in tandem with the volume of eCommerce transactions—particularly for small businesses where fraud controls aren't as robust as huge corporations.

    Let's explore everything you should keep in mind when it comes to the cost of fraud for your company. In this article, we'll look at four key costs of fraud imposed on small and medium businesses (SMBs):

    • Time
    • Chargeback remediation
    • Card processing fees
    • Reputational damage


    Fraud attacks can cost a significant amount of time. That's never ideal, even for large corporations with a dedicated fraud department. It's especially burdensome for SMB businesses where they typically have fewer than 100 employees and no dedicated fraud department.

    And what if the fraud occurred on a large scale? It could be a real gamechanger for SMB businesses (not in a good way). For example, a single individual could use multiple compromised payment methods to make a large number of fraudulent purchases within a short amount of time.

    The impacts would be devastating. Suddenly, it becomes an all-hands-on-deck operation to:

    1. Investigate the fraud attack.
    2. Ensure the fraud attack isn't ongoing.
    3. Implement safeguards for the next time.

    All of that costs time. A lot of time. And it all happens while the business continues operations. It's not like the business is put on hold while you deal with fraud problems. The problem solving runs concurrently with legitimate business orders--especially during high-order times like holiday shopping, etc.

    Chargeback Remediation

    Small businesses will also suffer from chargebacks during instances of fraud. Not only will you be required to pay the amount that was fraudulently used for a purchase, but you will also be responsible for fees between $20 and $100 per chargeback.

    Be sure to read and bookmark our comprehensive article about friendly fraud vs. chargeback fraud.

    Then there's the chargeback management process. Will you make the decision to fight the chargeback or will you (like many others) just accept it as a business cost? This costs you additional money and time.

    Don't be left in chargeback limbo! Get your free copy of our eBook, The eCommerce Guide to Chargeback Management.

    Get your copy

    Clearly, dealing with fraud can quickly become very expensive. 

    Card Processing Fees

    Unfortunately, your business will also still be responsible for card processing fees. This is true even if a credit card dispute has been resolved in your favor.

    To elaborate, let's assume that a customer made a fraudulent purchase from a clothing retailer online. The owner of the business disputes this purchase (more time spent) and is able to prove that the activity was fraudulent.

    Although the situation is then resolved and their favor, they don't receive compensation for the card processing fee they already paid.

    Combined with chargebacks, these fees can easily be overwhelming for SMBs that have limited resources. So, implementing comprehensive fraud protection is always a worthy investment. 


    Unfortunately, it's relatively easy to develop a negative reputation when fraud is involved. This also tends to have a couple of lasting effects. 

    1. Other criminals/fraudsters will target your business after a successful fraud attack.
      Fraudsters usually operate in fraud rings, or networks. This isn't true 100% of the time, but bad actors work in networks to discover and exploit businesses with weak fraud prevention tools in place. There are even Reddit threads on the Internet where they discuss businesses that have already fallen for payment fraud once. Even worse--there are "fraud services" where bad actors will provide refund fraud services to other fraudsters.
    2. Real customers won't buy from you once your reputation is damaged.
      Many people become worried (rightfully so) when they hear "the 'F' word" (fraud) associated with a particular business. This is a direct result of scenarios like the Equifax breach, which led to many people skeptical about the safety of managing and spending money online.

    Ask yourself some questions

    • Is your payment page secure?
    • Who manages that payment page?
    • What fraud signals are you looking for?
    • Does manually reviewing transactions add friction to the customer experience?
    • What do your cart abandonment rates look like?

    The Costs of Fraud Seems Complicated (but it's not)

    Dealing with payment fraud can seem daunting. But, you're a business owner--by nature, you're up for the challenge! Take a methodical approach to fraud prevention and fraud protection, and you'll be on your way to running a fraud-free business.

    Knowing the costs of fraud, and how to deal with them, is half the battle. Add a fraud tool like a scoring platform (assigns a score to each transaction to help you decide whether to approve or deny) or a decisioning platform (a yes or no answer about whether or not to approve the transaction).

    We can help! Want to learn more about our fraud prevention platform? You should reach out to us today and see how Vesta can be the all-purpose tool in your eCommerce tool kit.

    Yes, let's chat


    Other posts you might be interested in