Merchants’ limited understanding of mobile transactions presents risk fraud: report
Merchants have only a cursory understanding of mobile transactions even as the volume continues to grow, making it challenging to assess the legitimacy of these transactions, according to a new report from Kount, CardNotPresent.com and The Fraud Practice.
The third annual Mobile Payments & Fraud Survey of 2,000 merchants found that concern over the implementation around new payment methods more than doubled in a year. A key takeaway is that the industry is further behind on mobile adoption and fraud protection than it was a year ago.
“The big news is that retailers are lagging behind mobile growth when it comes to protecting themselves and their customers from fraud,” said Don Bush, vice president of marketing at Kount. “Less than 40 percent of companies can detect if a consumer is transacting from a mobile device, and only 17 percent can detect from which type of mobile device a transacted originated.
“This proves that we really are in a state of infancy when it comes to mobile transactions,” he said. “While it makes sense that merchants are not fraud experts, the survey results show that that companies can no longer sit back and be complacent when it comes to mobile fraud protection – they need to work with their tech teams and third parties to ensure they have increased their level of commitment to mobile, because mobile growth is only continuing to increase.”
A complex ecosystem
A key finding is that the number of merchants that consider managing the complexity of new payment types the biggest obstacle to mobile adoption more than doubled to 20 percent in 2014 from eight percent in 2013. The number has tripled since 2012’s 6.5 percent.
Overall, merchants are earning more revenue through mobile and implementing new solutions to meet the needs of customers in the mobile channel.
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While merchants appear to have recognized that mobile payments are poised to make an impact, there is little urgency around the need to have mobile fraud protection in place.
The report found there is very little consistency in the adoption of tools available to merchants to meet increased fraud.
The report predicts that unless retailers insure IT departments are talking with fraud teams to understand the risks and rewards with mobile payments, fraud will grow to become a bigger issue in the years ahead.
Different spending patterns
Key findings from the report include that 39.7 percent of organizations can detect if a customer is transacting from a mobile device, and only 17 percent can determine the type of mobile device.
“It’s important for online retailers to understand which devices consumers are transacting with because they have different spending patterns and characteristics, including varying transaction costs,” Mr. Bush said. “If retailers know what they are looking for, they can better determine the legitimacy of a transaction.”
When it comes to mass merchants, 45.5 percent can identify mobile devices by type. However, zero percent of insurance companies could determine if transactions are coming from mobile.
Gaming and social sites are the only ones able to identify all transactions that come from mobile devices. However, only 25 percent can determine the device type.
Additionally, 39.4 percent of merchants track fraud by channel and differentiate it from standard ecommerce transactions overall.
Another finding was that 60 percent are uncertain if mobile fraud is growing at a faster, slower or equal pace as their overall mobile transaction volume.
Organizations are split on where fraud originates, with 32 percent indicating mobile fraud was coming from domestic transactions, while 31 percent stated most mobile fraud comes from international sources.
The findings also underscore how merchants are not prioritizing mobile fraud.
While mobile fraud is on the rise, 48.4 percent consider the mobile channel equally as risky as standard ecommerce while 10.4 percent consider it less risky. This compares to 41.4 percent and 7.8 percent, respectively, in 2013.
The share of merchants that believe mobile commerce is somewhat or far riskier than traditional ecommerce both declined, by about 6 percent and 4 percent, respectively.
Additionally, 24.2 percent of respondents feel mobile requires specialized fraud tools, a decrease from 2013’s 32.2 percent.
In terms of combatting mobile fraud, 28.4 percent plan to add no additional tools or services.
The top three tools for preventing fraud in the mobile channel are reported to be ID authentication (49 percent), device ID (48 percent) and secure mobile payment methods (44 percent).
Identity authentication use declined in from 38.2 percent in 2014 from 41.7 percent in 2013.
“I was most surprised by the number or organizations who are unaware of the risk mobile fraud poses — more organizations consider the mobile channel equally as risky as, or less risky than standard ecommerce — 48.4 percent and 10.4 percent in 2015, respectively, compared to 41.4 percent and 7.8 percent in 2013,” Mr. Bush said.
“Also, nearly half of organizations surveyed – 40.8 percent – said they are uncertain if fraud increased following a major data breach and over half – 60 percent – of respondents are uncertain if mobile fraud is growing at a faster, slower or equal pace as their overall mobile transaction volume,” he said.
Chantal Tode is senior editor on Mobile Commerce Daily, New York