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| Friday, 30 January 2015 16:11 |
Mobile fraud losses jump 70% in 2014
Merchants flock to mCommerce channel, but so do fraudsters
Article by Annich McIntosh
The rate that mobile commerce merchants lose revenue to fraud increased by 70% in 2014 to 1.36%, up from 0.80% in 2013.
Figures from LexisNexis indicate that mobile merchants are losing revenue at a higher rate than the general level of fraud for both mobile and non-mobile transactions - all merchants lost 0.68% of revenue to fraud in 2014 in comparison to 0.51% in 2013.
The report says that as merchants move to mCommerce – with 15% now estimated to use the channel, more than double the level in 2013 – they are being followed by fraudsters. The complexity of additional payment channels, like digital wallets, coupled with additional access channels, like mobile web sites and apps, produce more avenues for fraud.
Fraud as a Percentage of Revenue for Merchant Segments by Year
mCommerce merchants accept an average of 4.5 payment channels, significantly more than the 2.6 channels accepted by all merchants. mCommerce companies have more fraud exposure than other types of retailers.
More than one-fifth (21%) of all fraudulent transactions are attributed to the mobile channel, which is disturbing due to the fact that the number of transactions occurring through mCommerce channels is still low for the average mCommerce merchant. In 2014, 14% of all transactions were accepted via mCommerce channels
Volume of Mobile Transactions in Total Transactions and Fraudulent Transactions
Dennis Becker, VP corporate markets at LexisNexis Risk Solutions said: “Mobile commerce is going to be more widely adopted by merchants because customers are clamoring for the convenience. To reduce customer friction and sell more through the mobile channel, now is the time for mCommerce retailers to put in place fraud prevention tools to counter the disproportionate amount of fraud that is currently occurring.”
The report found that the costs associated with mobile channel fraud are more than three times the initial losses.
At US$3.34 per dollar of fraud losses, the LexisNexis Fraud Multiplier cost for fraudulent mobile transactions is the highest of any channel.
The Fraud Multiplier cost for mobile transactions has increased 18% since 2013, even while the cost for online transactions has decreased 15%.
Becker added: “The findings of this study suggest that the more mCommerce companies move away from a ‘one-size-fits-all’ fraud strategy the faster they will grow and be more profitable.”
Based on the study results, customer identity verification is the top fraud prevention challenge for mCommerce merchants, followed by friendly fraud (fraud perpetrated by a family member or close associate). The inability to confidently verify the identity of a customer and their device leads to friendly fraud, and according to the study, 24% of fraudulent transactions are due to this type of fraud. “We expect this percentage to drop, as more mCommerce merchants adopt mobile-channel specific fraud prevention tools,” said Becker.
Recommendations
To combat mobile fraud, the report recommends that merchants:
- Track mobile fraud separately from online fraud. It says this is the only way to accurately assess the need for fraud solutions designed for mobile transactions. As the percentage of fraudulent mobile transactions among all fraud is disproportionate to the percentage of all mobile transactions, it is clear that mCommerce comes with additional risk compared to other payment channels. Only when a merchant is able to disaggregate data by fraud channel will it be able to know where fraud is moving and whether or not solutions are working.
- Mitigate high-cost mobile fraud by leveraging solutions optimized for the channel. Among mCommerce merchants, 15% cite a lack of specialized mobile and online fraud solutions as a top fraud challenge, yet use rates are low for online and mobile-oriented fraud prevention solutions such as device identification and geolocation. Supplementing or replacing solutions geared to only prevent fraud on certain types of payments with solutions designed to authenticate mobile transactions can effectively reduce the rate of high-cost mobile fraud.
- Review and align priorities for the implementation of fraud prevention solutions, especially if selling internationally. mCommerce merchants consistently display a disconnect between the fraud they encounter and their awareness and use of solutions. In addition to the specific challenges of mobile transactions, mCommerce merchants experience a high proportion of international fraud, yet they are not likely to use the solutions they believe are most effective for preventing fraudulent internationally-originating transactions. Reviewing the dominant fraud types and surveying the marketplace for the most appropriate solutions are in order.
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