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Mobile Fraud: To See or Not To See

posted on: Wed May 18 2016

bigstock-don-t-walk-848760-320px.jpgImagine you’re at the corner of a busy intersection, wanting to cross the street. You press the button that activates the pedestrian crossing signal and watch the traffic zip by as you wait for the light to change. The traffic slows and then comes to a stop. The orange DON’T WALK signal on the other side of the street changes to a white WALK symbol. You do a quick look in both directions to make sure it’s safe, then step off the curb and into the crosswalk. When you’re about 10 feet from the other side, the white WALK signal changes to a flashing orange DON’T WALK, counting down 5-4-3-2-1. You step up onto the sidewalk and continue on. Simple and uneventful, right?

Now imagine trying to cross that same intersection blindfolded and with your ears plugged! You cannot see or hear the cars, the traffic lights, the crosswalk, or the pedestrian signals. You have no indicators if the signal says WALK or DON’T WALK, if traffic is stopped, if you’re in the crosswalk, or if you’re about to get hit by a bus! How comfortable do you feel stepping off the curb?

Unfortunately, the second scenario describes the situation that nearly 4 out of 10 eCommerce merchants face when trying to prevent fraud in mobile transactions. How so? In the recently published Mobile Payments and Fraud: 2016 Report, 38.2% of merchants said they were unable to detect if a mobile device is being used in a card-not-present transaction.

That blindness is dangerous. Especially when you consider:

  • Mobile transactions are 2X more likely to involve fraud1
  • Merchants incur $2.08 in actual fraud loss for each $1 of mobile commerce fraud2
  • 1% of merchants say mobile transactions are far riskier / somewhat riskier than conventional eCommerce

But just how prevalent is this mobile blindness? The data may surprise you.

It’s true that smaller merchants are (a little less) likely to detect if a mobile device is being used: 41.4% with annual revenue under $5 million (compared to the overall average of 38.2%). But large merchants with annual revenue over $50 million perform only slightly better at 35.2%. And oddly, merchants in the mid-range ($10-$25 million annual revenue) are the ones that are least likely to be able to detect if a mobile device is being used: 54.5%

Mobile Fraud Survey: ability to detect mobile devices

When you look at individual merchant types, there are definitely leaders and laggards when it comes to the ability to detect mobile devices. Dating/Social Sites and Travel merchants obviously have a lot of mobile users, so it makes sense they would be more likely to know if customers are using mobile devices in transactions.

Merchant Type Yes / Yes, including Type of Device No
Automobiles/Auto Parts 100% 0%
Direct Response 100% 0%
Other Services 100% 0%
Dating/Social Sites 80% 20%
Toys/Hobbies 80% 20%
Travel 78% 22%

It also seems logical that Hardware/Home Improvement merchants would have more “old school” customers, and so detecting mobile commerce might not be that critical for them.

Merchant Type Yes / Yes, including Type of Device No
Alcohol/Tobacco 0% 100%
Hardware/Home Improvement 0% 100%
Office Supplies 20% 80%
Professional Services 25% 75%
Money Movement 33% 67%
Telecom 40% 60%

But no matter how you slice these numbers, the surprising reality is that a significant percentage of merchants are conducting (riskier) mobile commerce without the basic ability to see when it’s happening!

What are the implications for fraud prevention systems in mobile commerce?

Kount’s philosophy is simple: the more indicators (like the WALK/DON’T signals) and defined guidelines (like a crosswalk) that your fraud prevention solution can provide, the safer and easier mobile transactions are for merchants. We believe that best-in-class mobile fraud prevention solutions should not only alert you if a mobile device is being used, but also provide a rich set of data that can help you approve the maximum number of mobile orders while holding fraud down to the lowest possible level. That’s why best-in-class mobile fraud prevention solutions will let you know:

  • What type of device is being used? Fraud levels often vary between device platforms– Apple vs. Android vs. Windows. Knowing the type of device lets you know how careful to be.
  • Is the device actually located where it says it is located? Chinatown or China? Fraud is more likely when the device’s actual geo-location is unusual/unexpected. You can take more precautions.
  • Is the device a pre-paid device? Pre-paid phones have some of the highest rates of fraud. If you know that’s what you’re dealing with, you can take appropriate steps.
  • Is the phone number forwarded to another device? If your verification message is being forwarded to a different device, that’s a strong warning sign of fraud.
  • Is the mobile device associated with previous fraudulent transactions?
    Knowing that the mobile device has a history of fraud can help you screen better.

Want to know more about mobile payments and fraud, including what tools merchants are using, if international markets are more likely to involve mobile fraud, and more? Then download the Mobile Payments and Fraud: 2016 Report. It features 93 data-packed charts and more than 100 pages of insightful stats, so you have the insights you need to more effectively fight fraud in the mobile channel.

Mobile Payments & Fraud: 2016 Report

SOURCES: 1 The Fraud Practice, Payment Trends and Security, David Montague, 2 2015 LexisNexis® Risk Solutions True Cost of FraudSM Study