Mobile Merchants Most Burdened By Fraud Costs

By Pete Rizzo (@pete_rizzo_)

LexisNexis released its 2013 True Cost of Fraud study on September 16, revealing that merchants around the globe paid more per dollar of fraud in 2013 than in 2012.

In total, the study uncovered that merchants paid $2.79 per dollar of fraud in 2013, up from $2.69 in 2012. The uptick was due to an increase in online fraud, according to the researchers. However, it was mobile commerce merchants that were found to have paid the greatest fraud losses.

The New York-based business solution provider indicated that mobile merchants were the only group that did not benefit from the overall decrease in fraud as a percent of revenue observed in 2013. Further, the report said that mobile merchants are likely to face continued difficulties in the years ahead, as more fraudsters migrate to the maturing channel.

“In the mobile space, all the focus has been about usability, specifically since mobile devices are smaller and harder to interact with, and it being a new platform,” Ehsan Foroughi, director of research at information security firm Security Compass, told PYMNTS.com. “Security has been put aside for the longest time. Now that there are billions of users and lots of opportunity for the attackers, it is becoming a battleground that has minimal defense prepared.”

What did the report reveal about mobile merchants’ attitude toward fraud, and which statistics suggest these merchants have yet to see the worst of their fraud troubles? We analyze the facts and figures in this PYMNTS.com Data Point.

Mobile Merchants Lose The Most Revenue To Fraud

The study found that eCommerce merchants, despite losing a greater percent of revenue to fraud, saw the biggest improvement in 2013. This industry’s fraud as a percent of revenue dropped to 0.53 percent from 0.60 percent in 2012.

Mobile merchants, by contrast, trailed eCommerce merchants (0.53 percent) and international merchants (0.69 percent) in fraud as a percent of revenue, with average fraud losses equaling 0.75 percent of their revenue from the previous year.

Maikel Lobbezoo, VP of product development at global payment solution provider Adyen, told PYMNTS.com that he believes this is because certain successful solutions aren’t yet prevalent.

“For fraudsters it is much harder to organize big attacks on mobile, compared to scripting on a traditional computer,” Lobbezoo said. “However the lack of much data available and indeed having less security options, like browser fingerprinting and 3D secure, is offering less protection against fraudulent transactions.”

Mobile Merchants Most Likely To Believe Fraud Can’t Be Controlled

ECommerce merchants, the report noted, have now adopted the outlook that fraud mitigation boosts sales and customer retention. The researchers indicated that the industry’s healthy approach to fraud was the driving factor in its reduction of fraud as a percent of revenue.

Mobile merchants were not found to possess this optimistic outlook. The report found that mobile merchants were the most likely to saw fraud costs too much to control, with 24 percent reporting this sentiment.

This belief that fraud control is futile was likely spurred by the fact that mobile merchants use an average of four fraud solutions.

“Our merchants are experimenting with several relatively new products for mobile commerce, and like with any emerging technology there will be an adjustment period to find the correct set of tools for different business models,” Karisse Hendrick, U.S. program manager at Merchant Risk Council, a nonprofit that promotes operational excellence for fraud in eCommerce, told PYMNTS.com.

Benefits Of Fraud Control Not Lost On Mobile Merchants

The report found that while mobile merchants were not optimistic about their use of fraud solutions, they did see the benefits of such services. Sixty-four percent indicated that reducing fraud would boost their sales, while 49 percent acknowledged that lower fraud rates were likely to bolster loyalty.

For more insight and analysis into how fraud is affecting mobile merchants, download the full report here.