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Mobile payment growth attracting more fraudsters

October 18, 2021

Summer Beach Holiday Online Shopping Concept

Jonathan Kriegel

CEO

Total eCommerce fraud will exceed US$20bn in 2021, up 18% over 2020 according to Juniper Research, and a growing tally of fraudulent transactions are originating from consumer smartphones as hackers follow the money.

ACI Worldwide’s latest Fraud Insights report analysed hundreds of millions of transactions across its global customer network. It reveals a 27% year on year expansion in eCommerce volume transactions in the first quarter of 2021, with Q221 also up 5% on the previous year’s quarter.

Dealing with fraud is also an expensive overhead for online sellers. Earlier this year, the FIS Worldpay Global Payment Risk Mitigation report estimated that 38% of online merchants lose 6% or more of their turnover to payment fraud. Many merchants are seeing increased operational expenses and customer churn as a result (read my recent blog – Combatting payment fraud: a big challenge for online merchants)

Mobile payment fraud on the up

An increasingly large proportion of eCommerce spends now originating on consumer smartphones, a trend that inevitably leads to higher levels of mobile fraud. Forrester estimates that over 75% of online retail sales in Asia were made on smartphones in 2020 for example, while Insider Intelligence has forecast that the US mobile commerce (m-commerce) market was worth US$284bn in 2020, 45% of the total US eCommerce market (up from around 25% in 2019).

ACI’s figures also include some interesting statistics on mobile fraud, with the number of suspicious transactions blocked by ACI having increased marginally by 1.3% in the first half of 2021. While those rates in most sectors have declined, they have grown in gaming and telco with the growth in overall transactions (up 20% and 18%, respectively). According to ACI, fraud attempt rates in gaming increased over 28% in H1’20. 0.6% of transactions related to mobile top-ups and handset sales were fraudulent.

A report by digital fraud prevention specialist Sift – Digital Trust & Safety Index: Exposing the Multi-billion Dollar Fraud Economy – also documents how payment fraudsters changed tactics and scaled up their operations in 2020. The most common fraudulent transactions involve purchases of video game currencies and cryptocurrencies, site credits, food and alcohol, event and tour tickets and gift cards.

Sift also noted a 33% year-on-year increase in fraud rates related to digital wallets, with the value of associated transactions up 10%. The company estimates that over half of payment fraud in 2020 (62%) was attempted via an Android or iOS mobile device. That was up 11% in 2019 and corresponds with a parallel 10% drop in the volume of payment abuse incidents involving desktop PCs (36% of the total).

Real-time transaction screening and identity verification needed

eCommerce purchase volumes will continue to grow post-pandemic as more consumers migrate online, forcing the closure of many physical stores in times to come. A greater preference for funding purchases through mobile methods such as electronic wallets (eWallets), app payments, social media platforms, and buy now pay later (BNPL) apps are expected to fuel that expansion.

Juniper Research attributes the rise in eCommerce fraud partly to new merchants going online for the first time during the pandemic. Many of these were small businesses and may have lacked the resources to set up, configure and manage advanced security measures.

According to ACI, real-time fraud screening and robust data security are rapidly becoming a must rather than a nice to have for those merchants if they are to avoid losing large sums of money to cybercriminals. But the continuing challenge for those merchants is to provide safe mobile payments and shopping channels without making associated identity and security checks so onerous as to produce excess friction in the purchasing and billing process, which may lead to higher transaction abandonment rates.

In many cases, it makes more sense for those merchants to work with specialist third-party payment providers like DOCOMO Digital, which can implement and manage fraud detection and remediation on their behalf, often as part of a managed service proposition.

These services analyse hit rates and conversion rates to identify suspicious behaviour signs that may indicate fraudulent activity and check consumer histories to verify their identity and shopping history, for example (read more in another recent blog mCommerce needs smarter fraud protection).

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