5 Surprising Reasons Mobile Fraud Is Increasing

Mobile apps are white-hot right now, and smart merchants are racing to find and embrace lucrative new mobile commerce (m-commerce) opportunities. And yet, as merchants expand into mobile, they’re finding their fraud exposure is also increasing.

In fact, merchants selling through mobile channels lost 70% more revenue to fraud in 2014 than in 2013, according to LexisNexis. Other report findings included:

• From 2013 to 2014, m-commerce fraud rose 18%.
• While m-commerce accounted for 14% of total online transaction volume in 2014, it comprised 21% of all fraudulent transactions.
• The total cost per dollar of mobile fraud losses rose 12% in 2016 to $2.33.

Clearly, many merchants still haven’t realized mobile is quite different from the other channels they use, and many may be launching apps simply to remain competitive without fully thinking through what they’re doing.

If they truly understood their risks, they’d be actively taking steps to reduce their exposure.

The Causes Behind Mobile Fraud

Why do mobile transactions have this increased fraud risk, and what should merchants do to mitigate it?

Here are five reasons for the elevated levels of mobile fraud:

1. Fraudsters are drawn to new opportunities. Fraudsters love a challenge, and the developing m-commerce environment provides them the opportunity to take advantage of and conquer this new channel.
2. Many m-commerce merchants use weak fraud mitigation solutions. Many merchants don’t understand that mobile transactions require customized fraud protection strategies, so they end up using the same (and often inadequate) fraud protection strategies across all channels.
3. Merchants lack the comprehensive m-commerce data to flag questionable transactions effectively. As a relatively new channel, mobile transactions don’t have the same volume of data points as other transaction types, meaning it’s significantly harder to develop robust fraud algorithms to evaluate mobile transactions.
4. Multichannel merchants have an increased exposure to fraud. For example, larger merchants are processing mobile transactions and allowing in-store pickup — but they often fail to re-swipe the purchaser’s credit card on-site to confirm the purchase. Such policies increase the likelihood of a fraudster getting away with valuable merchandise.
5. Merchants are overconfident in mobile payment security. Mobile commerce merchants may place too much faith in the safety of mobile payment options, like Apple Pay and PayPal. While 26% of m-commerce merchants, compared with 11% of all merchants, believe that mobile payments are more secure than online payments, this isn’t always true.

As m-commerce expands, the costs of — and exposure to — fraud will continue to increase, unless merchants adjust their approach to fraud protection by:

• Implementing strategies like device identification and geolocation to help identify m-commerce fraud attempts
• Focusing on risk management as closely as they concentrate on the customer experience
• Establishing processes to track online and mobile fraud separately so they can better understand their vulnerabilities and develop the appropriate fraud protection solutions and technologies

Unfortunately, merchants who fail to understand the risks of m-commerce fraud may find their foray into mobile will be a wasted (and costly) effort. The successful merchants will be those who are not only optimized for mobile commerce but who have also secured all their commerce channels against potential fraud.

Establishing the right fraud protection strategy means selecting and implementing a robust fraud solution that’s customized to the channel and that combines machine learning with a dedicated, trained staff.

Contact ClearSale today to learn how our multilayered approach can help merchants increase revenue, improve customer satisfaction and reduce fraud.