Commentary

Mobile Commerce Fraud Rises

Mobile ecommerce is growing fast, and that is obviously good news for retailers -- but as always, you take the good with the bad.  In this case the bad news is that the increase in legitimate mobile commerce sales provides cover for an increase in mobile commerce fraud. That’s according to a new report form LexisNexis Risk Solutions, which calculates that the volume of fraudulent transactions increased from 0.8% of total mobile commerce revenues in 2013 to 1.36% in 2014, a year-over-year increase of 70%.

Tellingly, mobile fraud occurs at a higher rate than fraud for retail activity overall, which rose from 0.51% of total revenues in 2013 to 0.68% in 2014. In the same vein, mobile commerce made up 21% of all fraudulent transactions tracked by LexisNexis, even though mobile commerce contributes just 14% of all transactions. This is due in part to the fact that mobile commerce operators accept more forms of payment, like mobile wallets and payment channels; on average, mobile retailers accept 4.5 channels, versus 2.6 for all merchants.

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All this fraud brings a high cost beyond the mere loss of revenues. Each dollar lost to fraud costs mobile commerce retailers a total of $3.34 in 2014, up from $2.83, with the increase reflecting the extension of mobile commerce into the sale of physical goods (which presumably are harder to get back).

To combat rising mobile fraud LexisNexis pointed to identity verification as a key tool, in part because it will help prevent “friendly fraud,” defined as unauthorized transactions on a mobile device by an individual’s friends or family members; these represent 24% of all fraudulent transactions.

Consumer-facing mobile fraud is also increasing. Last week I wrote about a study from Lookout, a digital security firm, which warned of a big increase in various types of mobile malware, including “ransomware,” spyware, and Trojan apps. In the U.S. alone, Lookout found that the volume of Android malware attacks increased 75%, from 4% in 2013 to 7% in 2014. Ransomware posted the biggest gains, with over four million U.S. Android users paying ransoms ranging from $300-$500 in order to free their devices.

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