Mobile Commerce Frauds On The Rise

by CXOtoday News Desk    Jan 29, 2015

mobile commerce

Revenue that mobile commerce merchants lost to fraud spiked 70 percent in 2014 to 1.36 percent compared with 0.80 percent in 2013, according to a new report. For comparison, all merchants lost 0.68 percent of revenue to fraud in 2014 in comparison to 0.51 percent in 2013, it said.

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. Study results show that 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 percent of all transactions were accepted via mCommerce channels.

“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,” says Dennis Becker, Vice President, Corporate Markets, LexisNexis Risk Solutions.

In addition, merchants are struggling to manage costs for merchandise sold through the mobile channel. The LexisNexis Fraud Multiplier cost for the mobile channel rose to $3.34 in 2014 from $2.83 in 2013, a result of the expansion of the mobile channel into physical goods markets.

“mCommerce merchants have an opportunity to strategically implement mobile-channel specific fraud prevention measures,” Becker explained. “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. The inability to confidently verify the identity of a customer and their device leads to friendly fraud, which is defined as fraud perpetrated by a family member or close associate. The study shows that 24 percent of fraudulent transactions are due to friendly fraud.

“We expect this percentage to drop, as more mCommerce merchants adopt mobile-channel specific fraud prevention tools,” Becker concluded.