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Do More Mobile Orders Necessarily Mean More Fraud?

posted on: Tue Apr 26 2016

mobile orderToday, less than 1 in 10 merchants get more than half of their revenue from the mobile channel. But that number is projected to triple to nearly 1 in 3 merchants in just two years. Those compelling numbers come from the recently published Mobile Payments and Fraud: 2016 Report.

The report quantifies (on page 54) the percentage of revenue that mobile contributes to total overall sales for each merchant type. On average, 9.5% of merchants (1 in 10) currently get more than half their revenue from the mobile channel. However, for a number of merchant types, mobile plays a much bigger role. The table below highlights these merchant types and the percentage of them that get more than half their sales from mobile.

Merchant Type CURRENTLY > 50% of revenue from mobile
Gaming 25.0%
Dating/Social Sites 42.9%
Other Services 28.6%
Direct Response 50%
Insurance 25%
Alcohol/Tobacco 50%

In two years, an average of 29.5% of merchants expect mobile to generate more than half of their revenue. The table below highlights the merchant types that predict the biggest increases in mobile revenue. 

Merchant Type Currently > 50% of revenue from mobile In 2 years > 50% of revenue from mobile % Increase
Toys/Hobbies 5.3% 21.1% 398%
Food/Drug 5.9% 29.4% 498%
Travel 8.3% 33.3% 401%
Financial Services 9.1% 45.5% 500%
Flowers/Gifts 10.0% 40.0% 400%

 
What will be the impact on fraud prevention and fraud losses? These four potential downside risks/trends stand out:

  1. Greater risk/uncertainty. 8% of merchants say mobile commerce is riskier than standard eCommerce, and another 11.5% report that mobile fraud is increasing. But perhaps more disconcerting than the higher risk is the number of merchants who simply don’t know. Nearly 4 in 10 merchants (38.5%) can’t tell if their company has a mobile fraud problem. And nearly half (49.1%) are uncertain if fraud is increasing or decreasing. These blind spots could cause a lot of anxiety for merchants as mobile orders increase over the next 24 months.
  2. Higher fraud losses. The Fraud Practice reports that fraud losses from mobile transactions are 2X higher than from conventional eCommerce (1.32% of revenue vs. 0.68% from revenue). The 2015 LexisNexis Risk Solutions True Cost of Fraud Study calculates $2.08 in actual fraud loss for each $1 of mobile commerce fraud. Interestingly, the numbers from the Mobile Payments and Fraud: 2016 Report aren’t as dramatic. More than half of the merchants (56.1%) in the Mobile Payments and Fraud: 2016 Report say that they track fraud by channel and can tell the amount of fraud that mobile commerce is responsible for. Yet only 14% say that the mobile channel represents more than 10% of total fraud. However, this lower number may be due to the fact that 43% don’t know what share of total fraud losses occurred in the mobile channel. In other words, what they don’t know could be hurting them.
  3. Greater complexity. Nearly 2 out of 3 merchants (64.5%) think mobile transactions require more than standard eCommerce fraud prevention processes and tools. In fact, 20% say that mobile requires very specialized fraud prevention tools. This is supported by the increasing number of mobile fraud prevention tools and processes that merchants report using over the past 4 years. If this trend continues, the complexity of fraud management could get much worse.
  4. Higher operational costs. With merchants employing an increasing number of standalone tools and processes to fight mobile fraud prevention, the cost of mobile fraud mitigation has surely increased (though specific numbers are hard to pin down). Add to that the higher cost of some of the authentication techniques merchants use to fight mobile fraud (i.e., Voice Verification) and increasing mobile transactions could translate into substantially higher OPEX for merchants.

Fortunately, these downside risks and trends aren’t carved in stone.

There are best-in-class fraud prevention solutions that integrate comprehensive mobile fraud prevention into their overall eCommerce fraud mitigation processes. The result is fast mobile checkout with lower risk and uncertainty, reduced fraud losses, less complexity, and streamlined operational costs.

If you want to discover the latest trends in mobile payments and fraud, download the Mobile Payments and Fraud: 2016 Report. It features 93 charts and 100+ pages of insightful data, providing you with actionable information to fight fraud in the mobile channel.

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