UK retailers are under siege from a surge in AI-driven fraud, eroding thin profit margins and forcing a scramble for smarter defences.
As economic headwinds bite, fraud losses are climbing, with businesses from high street giants to e-commerce heavyweights investing heavily in technology to stay afloat.
Michael Reitblat, chief executive of fraud prevention specialist Forter, warns that the crisis is hitting UK firms hardest where experiences matter most – turning potential sales into costly headaches.
Recent figures paint a stark picture for UK commerce, with the recent ‘UK Finance’s Annual Fraud Report 2025’ revealing total fraud losses hit £1.17bn in 2024, with unauthorised card fraud up 14 per cent to over 3.13 million cases.
The British Retail Consortium reports customer theft costs reached a record £2.2bn in 2023 to 2024, with incidents topping 20 million and daily violence or abuse incidents soaring 50 per cent to more than 2,000.
Ravelin’s 2025 survey shows 66 per cent of UK retail merchants facing year-on-year fraud increases, while the Office for National Statistics logs a 31 per cent jump in fraud offences to 4.2 million for the year ending March 2025.
AI is driving these threats, with Celent dubbing it as behind 20 per cent of 2024 fraud – a share set to expand in 2025.
Reitblat, whose firm processes $350bn in annual transactions for global clients including UK players, sees it as a democratising force for bad actors: “The usage of AI became even more convenient. AI is democratising a lot of things… if you’re an average frudster before you couldn’t do much, now all of a sudden you can’t. There’s now probably about four to five times more fraud done through the AI works than without”.
Returns fraud on UK retail
At the heart of the squeeze is returns fraud, a persistent drain worsened by post-Covid leniency and cash-strapped consumers.
UK online returns totalled £27bn last year, with £6.6bn linked to serial abusers.
Reitblat told City AM: “If their return rate is 35 per cent, they’re kind of fine if it goes up to 40 per cent, they’re bankruptcy”.
He cites analysis of a major retailer: “We looked at their data and it realised almost 50 per cent – I think it was 46 per cent – of all of their returns are done by one per cent of their customers, which shows us something isn’t right”.
Economic pressures are pushing more ‘friendly’ fraud, where shoppers don’t see it as wrongdoing.
“I bought a dress, I wore it for an event, I return it after, no big deal. A lot of them don’t understand that it is actually a very big deal because the retailer lost a lot of money on that order”, added Reitblat.
UK firms, from fashion e-tailers to grocers, are feeling the pinch. Quick-service restaurants saw attacks leap 45 per cent year-on-year, according to a Forter and PwC report, with 85 per cent from repeat offenders.
Loyalty schemes are prime targets too, with stored-value accounts six to seven times more vulnerable.
UK businesses bet on tech
But AI isn’t just arming fraudsters – it’s also becoming a lifeline for retailers fighting to reclaim lost revenue.
As Reitblat said:”“The pace of change when it was manual wasn’t very fast. You saw trends kind of once a year… But now, it’s incredibly fast, and AI is enabling it to be even faster”.
Fraudsters use it for scams like doctored refund images: “You generate an image that shoes are dirty, there’s something ripped there… You send it over to a call centre, one person looks at it, sees the image is clearly faulty, and issues a refund”.
But UK businesses are countering with AI-driven authentication, shifting from anomaly hunts to identity verification.
“Instead of looking for anomalies, we want to authenticate the human”, Reitblat explains. This networked approach, of pooling insights without sharing data, helps spot cross-retailer patterns.
Last year, fraud tech unlocked $9bn in global revenue by approving legitimate transactions faster, which is vital for UK firms where seamless experiences drive loyalty. Shopify and others project AI fraud tools could save billions annually via real-time analysis.
As Reitblat put it: “It’s just a matter of deployment because there’s a finite number of humans and you cannot generate fake humans quickly enough”.
Supply chain strains
Fraud ripples through supply chains, with 42 per cent of UK firms hit in the past two years by issues like counterfeits and falsified documents.
Reitblat stresses investment: “It’s not an after thought. And you need good good people and proper professionals here”.
Cifas data shows identity fraud up five per cent to nearly 250,000 cases in 2024, with facility takeovers surging 76 per cent.
Emerging agentic commerce – AI agents shopping autonomously – is another frontier, up seven per cent week-on-week.
Reitblat warned of adaptation speed: “The advantage bronsters have, they’re usually more sophisticated than anybody they’re attacking”.
For UK businesses, it’s a call to arms: embed fraud tech now to protect margins and seize AI’s revenue upside in a tough market.