As mobile shopping becomes more common, retailers accepting payments via mobile browser or app face significantly higher rates of fraud compared to merchants who don't, according to a recent LexisNexis Risk Solutions study emailed to Retail Dive. Mid-to-large retailers offering mobile commerce services saw a notable spike in fraud volume between 2018 (1,319 attempts) and 2019 (3,085 attempts).
Fraud costs are highest for mid-to-large retailers and e-commerce merchants selling digital goods, which include gift cards, software, e-books, mobile apps and event tickets. Mid-to-large retailers with digital goods and mobile commerce capability spend $3.40 in fees, interest, merchandise replacement and redistribution per dollar of fraud the merchant is liable for, according to the report. Mid-to-large e-commerce merchants with digital goods and mobile commerce spend $4.06 per dollar of fraud.
The increased complexity of fraud attempts means that several risks can occur at the same time without a sole go-to solution, the report notes. Mobile bots, infected devices and malicious malware are specific risks to transactions made on mobile devices.
As retailers build out their accepted payment methods, fraudsters are also diversifying their methods of attack. They're getting more sophisticated, targeting e-commerce and mobile merchants, as well as traditional retailers, according to LexisNexis Risk Solutions. The cost for each dollar of fraud losses is up 6.5% over last year; across retailer types, the cost per dollar of fraud is up to $3.13, up from just $2.40 in 2016.
Retailers are expected to lose about $130 billion in revenue on fraudulent transactions where cards aren't present between 2019 and 2023. Digital goods are among the most vulnerable, with a fraud rate increase of 167% between 2017 and 2018, according to research from Forter. That report indicated that digital goods have seen such an increase in fraud because they often have a streamlined purchase process that requires less information than other items.
While retailers and merchant services providers may want to continue to reduce the friction involved to complete transactions for digital items on mobile devices, increasing some friction may actually be key to reducing fraud. The LexisNexis Risk Solutions report points out that fraud tools need to authenticate both digital and physical criteria to assess identity and transaction risk. For mobile transactions, this may mean analyzing normal consumer click patterns and authentication methods versus that of fraudsters, or identifying a device by user password, fingerprint or geolocation.
Verifying basic identification like name, address, date of birth or credit card CVV code, or using two-factor authentication or authentication quizzes, may cause the transaction to take longer, but could reduce fraud.