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An Already Complex Payments Space Gets More Curious

posted on: Fri May 26 2017

Payments revenue is projected to hit $2.3 trillion worldwide within 2 years. And as revenue grows, so does complexity. What should you look for (and look out for)?

Mobile Payment Apps. Mobile payment apps are transforming card-present transactions into card-not-present (CNP) transactions. After all, the biggest point of friction in any retail setting is the checkout line. The ability to pay via a mobile app and not wait in line is already driving big changes in the quick service restaurant (QSR) industry. For example, Starbucks Mobile Order & Pay generates 5 million transactions a month. Taco Bell's app has been downloaded 2 million times. And half of Domino's Pizza orders take place online. But QSR isn’t the only market segment experiencing this phenomenon. For example, “buy-online-and-pick-up-in-store” (BOPUIS) transactions account for 10% of Target’s online sales.Mobile Payments

One common denominator for the various manifestations of this mobile app trend? Higher fraud rates.

According to ACI Worldwide, attempted BOPUIS fraud rates for the 2016 holiday season were projected to increase 28%. Kount is also seeing these trends. Through our extensive merchant and payments network (over a billion transactions per year), Kount has observed dramatically higher attempted fraud attacks via mobile payment apps.

Mobile Wallets. In 2014, Apple was the only major mobile wallet. Since then, Chase, Google, Samsung, Walmart, and dozens of others have leaped into the fray. While most of the excitement involves in-store purchases, the impact of mobile wallets on card-not-present fraud in the online world can’t be overlooked. The ability to load account information from dozens or even hundreds of stolen cards into a mobile wallet makes committing eCommerce fraud online exponentially faster and easier. Fraudsters can literally click from card to card to card attempting to hit the jackpot.

Virtual Wallets. Much like mobile wallets, virtual wallets allow consumers to aggregate all of their credit cards into a single resource. In other words: “one card to rule them all.” And while the convenience this provides to shoppers is valuable, the ability to load onto a single card the data from dozens and dozens of stolen credit card accounts greatly speeds and simplifies eCommerce fraud for fraudsters.  

Technology Players. Whether it’s nascent startups or existing tech giants, nonbank entrants are also having a huge impact on the payments ecosystem – and adding increased complexity. The explosive rise of the “smartphone” channel has given these nonbank players an opening that has never existed previously. And once again, these new opportunities also generate new risks and exposures for merchants.

In fact, this proliferation of payment complexity (and increased risk) suggests a number of requirements for online businesses, eCommerce operations and other retailers processing card-not-present transactions.

  1. Better mobile fraud prevention capabilities. LexisNexis says remote channels are getting hit with more successful fraud attempts. Mobile commerce – and the higher fraud rates that go with it – will only accelerate. If you’re not increasing your fraud prevention capabilities in this fast-growing channel, you could be in for a rough 2017.
  2. Increased sophistication in overall fraud prevention. New innovations are making it easier and easier for fraudsters to commit CNP fraud. Combine that with the fact that EMV is driving fraudsters into the CNP realm and that large eCommerce operations are enhancing their anti-fraud capabilities, and the result is that small and mid-market eCommerce merchants are more likely to become targets for CNP fraudsters. Better get prepared, or be prepared to take a hit to profits.
  3. Tight integration of mobile and non-mobile fraud prevention. With omni-channel commerce being the future, no organization can afford to use separate anti-fraud tools and systems for mobile commerce, eCommerce, and in-store commerce. The result of this type of thinking will only lead to complex and disparate fraud prevention processes that are much more costly and difficult to operate, while being substantially less effective at beating fraud. 
  4. Integration of payments and fraud prevention. As merchants struggle to keep pace with an increasingly complex payments and fraud prevention space, it’s no surprise that a growing number of payment service providers – including BlueSnap, Braintree, Chase Paymentech, GoECart, Magento, and X-Cart -- are offering portfolio-level fraud prevention as a baseline service to their merchant accounts.

Discover what's trending in the mobile industry and get access to preliminary results from the 2017 Mobile Payments and Fraud Survey. Join us for a live webinar featuring panelists from CardNotPresent and Entertainment Benefits Group. 

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