Fraud loss rate is a measure of how much money an organisation loses to fraud relative to the volume of payments it handles. It is usually calculated as the value of fraudulent transactions, or of net losses after recoveries, divided by the total value of transactions in the same period, and is often expressed in basis points (hundredths of a percent). For example, 50,000 in fraud losses on 100 million in card spending gives a rate of 0.05%, or 5 basis points.
Firms use it to track trends across products and channels. It is related to the fraud-to-sales ratio, and, in Europe, fraud rates determine whether providers may use the transaction risk analysis exemption from strong customer authentication. Firms should state whether the rate is gross or net of recoveries. A low rate should be read alongside false declines, since aggressive fraud decisioning can cut losses while rejecting good customers.