2.2 How Fraud Disrupts Businesses - Not Just Individuals
In our last post, we talked about how fraud affects individuals: Money, Privacy and Identity.
But here’s the thing: the impact doesn’t stop there.
Fraud is also a major business problem.
Its impact spans across a diverse array of industries, affecting:
Digital Marketplaces: Amazon, Facebook, Lyft, Grubhub, and others.
E-commerce Retailers: Costco, Kroger, BestBuy, and more.
Financial Institutions: Banks (Chase, BofA, Citi), Fintech (Paypal, Upstart ..)
Subscription Services: Netflix, HelloFresh.
Healthcare
And many more sectors.
More than just a direct cost, fraud is a deceptive force that erodes trust, shrinks margins, and obstructs genuine progress. Companies striving for growth often find themselves battling an unseen enemy, pushed into a defensive stance. What's worse, the very metrics of growth can be compromised: a 'surge' in new users might, in reality, be an influx of fraudsters creating fake accounts, masking true expansion with illicit activity.
Consider the critical dilemma fraud poses for e-commerce. A wave of false 'package not delivered' claims can force a company to issue millions in unwarranted refunds, directly impacting profitability. While tightening refund policies seems logical, it often leads to false positives that frustrate and drive away honest customers. In this lose-lose scenario, fraud doesn't just reduce revenue; it fundamentally damages the brand and customer experience.
Amazon's Lockers offer a prime example of innovation spurred by this challenge. Faced with significant losses from disputed deliveries and unclear accountability (customer, driver, or external thief), Amazon implemented these secure pickup points. Lockers empowered customers with a trusted alternative, effectively cutting fraud related losses and disputes while strengthening customer relationships.
Ultimately, fraud is never merely a "cost of doing business." Left unchecked, it systematically chips away at everything a company strives to build: its financial health, operational efficiency, and hard-earned brand reputation.
Across industries, fraud quietly chips away at the bottom line, often in ways that aren’t immediately visible.
So how exactly does fraud show up in a company’s financials?
We’ve broken it down into four core impact areas, the ones we see most often across industries.👇
The Four Dimensions of Fraud’s Business Impact
💸 Financial Losses
Let’s start with the most visible impact: money out the door.
Fraud directly eats into your bottom line sometimes in small, hard-to-detect ways, and sometimes in massive, headline-worthy ones. Below are just a few of the ways it shows up:
Stolen payment credentials lead to fraudulent purchases and chargebacks, where the business has to refund the customer and pay penalty fees.
Fake accounts exploit promotional offers like referral credits or first-time user discounts without ever becoming real customers.
“Item not received” scams abuse refund policies, where fraudsters falsely claim an order never arrived just to get their money back.
Compromised accounts and fake identities unlock all of the above at scale across thousands of transactions.
These attacks can drain profits in pennies or wipe out millions. And once that money’s gone? It rarely comes back.
🛠️ Operational Strain
Fraud doesn’t just cost money, it clogs your entire operation.
As fraud rises, companies scramble to defend themselves. What starts as a few manual checks can quickly spiral into a full-blown operational burden:
Manual review queues balloon, requiring more staff to inspect suspicious orders one by one.
Support teams get flooded with refund and chargeback-related tickets, burning hours on case-by-case resolutions.
Engineering teams are pulled into building fraud defenses adding friction to logins or checkouts often frustrating legitimate users in the process.
Tool overload becomes real: multiple fraud vendors, each with their own dashboards, APIs, and tuning knobs, add complexity and confusion.
And none of this is scalable. It’s not just frustrating, it’s operational drag that adds up fast.
📉 Reputation Damage
Fraud doesn’t just hit your finances, it hits your reputation.
All it takes is one bad incident: a hacked account, a wave of refund denials, or a legitimate customer falsely flagged as a fraudster. The backlash is fast, public, and sticky:
Angry customers take to social media with screenshots and complaints.
App store ratings drop after a flood of frustrated reviews.
News headlines label the brand as unsafe or negligent.
Partners and merchants begin to pull back, not wanting to be associated with risk.
And once that perception is out there, it’s hard to shake. You can fix a balance sheet. Rebuilding trust? That takes a lot longer.
🚧 Growth Hijacking
Fraud isn’t always loud, sometimes, it slows you down quietly.
Teams hold back product launches, delay geographic expansion, or layer on extra friction just to stay safe. But those safety measures often come at a cost:
High-risk regions get deprioritized or blocked altogether.
New features stay in limbo while fraud controls catch up.
Extra security steps at checkout drive up cart abandonment.
Fake accounts inflate user growth, skewing KPIs and clouding decision-making.
Promos and incentives meant for real users get hijacked by bad actors.
It’s not just about stopping losses. Unchecked fraud can quietly hold your growth hostage.
🧭 Do These Impact Areas Show Up the Same Way Everywhere?
Not quite. And definitely not equally.
While the four fraud impact areas, Financial Losses, Operational Strain, Reputation Damage, and Growth Hijacking offer a universal framework, the way fraud shows up in each industry is anything but uniform.
A few examples:
In financial services, the focus may be on wire fraud, phishing, and account takeover with false declines hurting legitimate users and regulatory risks like money laundering adding extra complexity.
In e-commerce, fraud often takes the form of refund abuse, chargebacks, and fake reviews eroding trust and distorting growth metrics.
On social media platforms, the biggest threats might be ad fraud, impersonation, and content manipulation where fraud damages not just monetization, but public discourse.
For healthcare, it’s more about data privacy, insurance fraud, prescription abuse, and impersonation often with life-altering consequences.
The visual below maps these threat patterns across industries. While the categories remain consistent - Money, Trust, and Regulatory the content inside each looks very different depending on the domain.
So yes, the four impact areas still apply but their weight shifts dramatically depending on your business. And your defenses?
They need to shift just as fast.
Next Up:
In the upcoming post of this series, we’ll explore what individuals and businesses can actually do about fraud.
From simple actions like setting up bank alerts or using one-time passwords, to advanced, AI-powered detection systems paired with human-led review strategies, we’ll break down the tools, habits, and mindsets that help stay ahead of fraud.
Whether you're protecting your personal accounts or running a fraud team at scale, we’ll cover what it takes to move from reactive to proactive.
(And yes — we’ll probably have more visual frameworks. You know us by now.)