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July 28, 2015

eCommerce Fraud Evolves To Target mCommerce

By TMCnet Special Guest
Tom Ryan, CEO of Argyle Data

Fraud is constantly evolving. It progresses with us, becoming more sophisticated as new technologies develop. Which is why mobile commerce is the latest victim of soaring fraudulent attacks. mCommerce is an emerging channel for digital payments that is similar to eCommerce. But with new technologies come new enemies, and a recent study by LexisNexis explored fraud in mCommerce and found that merchants are struggling to contain the rising costs of fraud.

According to the 2014 “True Cost of Fraud mCommerce” report, 15 percent of merchants accepted mCommerce payments in 2014, which is more than double the percentage that accepted the channel the year before. Mobile can be a promising new platform for commerce and as the smartphone and tablet markets mature, the industry is ripe for new technologies such as digital wallets and mobile payments.

Looking at how consumers pay with their phones, the most surprising finding is that bill-to-phone transactions, which is when retailers bill consumers through their monthly telephone bill, soared to 30 percent, up from 21 percent last year. Purchases directly through apps and web browsers remained roughly the same from year to year. Innovative services and apps offering a simpler alternative to credit card transactions rose slightly in the last year but the most prevalent mCommerce payment-acceptance channel is still the mobile web browser, which simply means that consumers are paying for things in the same way they would on their computers, just on their phones.

via Shutterstock.com

However simpler mobile transactions may be, they may not offer more secure means of exchanging financial credentials. According to the study, mobile transactions accounted for only 14 percent of the total transaction volume, yet 21 percent fraudulent transactions, indicating that as much as mobile payments are growing, attacks on mobile payments are growing even faster.

What’s more, the study revealed that the costs associated with mobile fraud are more than three times the initial losses. For every dollar lost to mCommerce fraud, the total cost was $3.34, which accounts for the chargebacks, fees and interest to financial institutions, and cost of replacing stolen merchandise. The cost alone is reason enough for worry, but on top of that, this number is up 18 percent in the past year. Comparing the cost of mCommerce fraud with that of eCommerce fraud – which dropped 15 percent in the last year to $2.62 – it’s clear that since mCommerce is an emerging technology, improved fraud-fighting techniques optimized for this channel haven’t been developed yet. Among mCommerce merchants, 15 percent cite a lack of specialized mobile and online fraud solutions as a top fraud challenge.

This brings us to another key issue in the study. Since the financial industry doesn’t see a big enough difference between mobile and online transactions to require separate fraud tracking for each of these channels, the burden of tracking mobile fraud rests with merchants and not the financial industry. This finding could explain why there haven’t been many measures to build fraud detection and prevention software dedicated to mobile as well as account for the rising cost of mCommerce fraud.

According to the study, mCommerce retailers consistently display a disconnect between the fraud they encounter and their awareness and use of solutions. The fact alone that mobile makes up a disproportionate amount of fraudulent transactions proves that there are additional risks attributed to mCommerce compared to other payment channels. Without the tracking of mobile fraud separate from online fraud, it’s difficult to understand this evolved form of fraud. While derived from online fraud, mobile fraud is an entirely new beast. It’s evolved into a serious threat and we need to evolve with it, before it’s too late.




Edited by Stefania Viscusi


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