The latest forecasts from Juniper Research estimate that online merchants will lose over US$206bn to payments fraud over the next four years, making the use of machine-learning-based fraud prevention platforms an immediate priority. The research firm also believes that mobile network operators (MNOs) have a pivotal role in supporting Know Your Customer (KYC) processes which are both a regulatory requirement and a critical component in building anti-fraud capabilities.
Published earlier this month [July 2021], Juniper’s report – Online Payment Fraud: Emerging Threats, Segment Analysis & Market Forecasts 2021-2025 – found that the remote purchase of physical goods is the leading cause of online payment fraud, accounting for over 47% of total losses in 2021. The pandemic has accelerated that trend, with global lockdowns and the closure of physical stores having pushed more consumers than ever before to shop online.
There were a parallel surge in the volume and value of mobile commerce (mCommerce) transactions as more people ordered those goods using their smartphones, which attracted more merchants to adapt their businesses to accommodate mobile sales. Statista estimates that mCommerce will represent almost 73% of total retail eCommerce sales worldwide in 2021, up from just over 70% in 2020. Forrester predicts that smartphone-led purchases will grow at a compound annual growth rate (CAGR) of 13.6% to reach US$2tn by 2024, representing 80% of the US$2.5tn total. And Juniper Research has forecast that the total global value of mobile commerce payments will reach US$3.1tn in 2025, up from US$2.1tn in 2020.
MNOs front and centre of mCommerce anti-fraud initiatives
That would seem to put MNOs in a prime position to help online merchants implement anti-fraud processes, particularly when it comes to supplementing KYC checks which help ensure that businesses know the customer they are dealing with. Increased fraud was identified as one of the top three online payment related initiatives by retailers in 2020, according to a Forrester report published in November 2020.
The surge of people using eCommerce and eWallets for the first time during the pandemic is unlikely to disappear once restrictions are eased. The automated onboarding of new customers onto digital payment platforms is a case in point. Juniper recommends that fraud detection and prevention solution suppliers focus on building platforms that can simultaneously cover multiple payment channels, including open banking payments, forge partnerships with third-party companies. These solutions should utilise customer transaction histories to identify suspicious behaviour quickly and accurately.
MNOs already collect and store large amounts of data about their subscribers, including details on how, when and where they use their smartphones, for example. In many cases, they have also developed online verification systems to stop people from using stolen identities when ordering new SIM cards.
While MNOs have their own KYC processes, the data they gather on their subscribers can deliver an extra point of validation for checks implemented by third parties. They can share that data with other businesses – banks, eCommerce vendors, merchants, credit bureaus etc. – under an identity networks model. Alternatively, operators could offer their own proven subscriber identity solutions based on the GSMA’s Mobile Connect service, which uses an application programming interface (API) to match the end-user to the mobile phone number.
MNOs are well placed to deliver additional multi-factor authentication (MFA) tools that use combinations of one-time passwords (OTP), PINs, application to person (A2P) messaging and automated voice calls. MNOs can ensure the end-user is who they say they are before transactions are authenticated.
DCB offers additional transaction security
Accepting online payments through direct carrier billing (DCB) is another secure option for merchants. DCB allows them to block or allow certain transactions depending on their network of origin (e.g. 4G or Wi-Fi) and user location, for example, and apply daily, weekly or monthly spend limits to reduce the financial risk.
Third-party payment service providers can help merchants broker partnerships with multiple telcos and MNOs in different parts of the world simultaneously to set up those DCB and anti-fraud processes. DOCOMO Digital also offers a Billing Risk Manager that provides detailed subscriber purchase histories and billing details to help reduce bad debt incurred through non-payment of bills and billing disputes. Our software uses a machine-learning algorithm to continually learn and adjust bad debt thresholds based on user transaction data and carrier policies to reduce associated losses and increase revenue and is currently used by some of the leading carriers. By partnering with experts in the field, global merchants can minimise payment fraud rates and in the same way.