In Depth

How Mobile Payments Shift The Security And Fraud Paradigm

When payments executives talk the current state of the payments ecosystem, there’s always one topic that can’t be avoided: security and fraud.

Mobile payment fraud. Mobile deposit fraud. Online fraud. Card fraud. Check fraud. No matter what form of payments we’re talking, there’s always going to be that big awkward elephant in the room that no one really wants to talk about but every executive and business owner fears.

But interestingly enough — despite the fact that fraud dollars are rising online — fraud rates are not. That means that those sophisticated online payment authentication tools are keeping that data safer and helping fraud rates dip. Online fraud dollars, of course, are growing because the number of online and mobile transactions are growing — but fraud rate has not kept up.

As MPD CEO Karen Webster pointed out in a column, if you take a look at CyberSource’s most recent fraud report, the report cites that the rate of fraud for online transacting hasn’t changed from .9 percent since 2010. And that’s during a time when eCommerce volumes have increased between 12 and 16 percent annually over that same period of time.

“All the while, they report that conversion rates have increased — nearly 99 percent of orders are approved (as measured by revenue), suggesting that fraud detection methods are getting smarter at finding fraud before it finds consumers, merchants and issuers,” Webster wrote. “So, even though absolute dollars related to fraud have increased, the rate of fraud has stayed constant.”

That’s further backed up from a 2014 report from the Association of Financial Professionals, which stated that 73 percent of payments professionals say that their fraud levels have been about the same or reduced over the last 12 months.

That column was sparked by Apple Pay and its headlines about the fraud that was allegedly “running rampant.” Well, it turns out that that fraud wasn’t so rampant. Six percent was the fraud level that was attached to Apple Pay transactions, but when that was broken down into context, the story was a bit different. When 6 percent is applied to the percent of overall transactions driven to merchants via Apple Pay, that actual rate of fraud is very, very low.

What the discussions about security and fraud come down to — at least when it comes to mobile payments — are how the security innovations (tokenization, TouchID and real-time behavioral and transactional analytics) will play a role in keeping online and mobile eCommerce transaction fraud rates low. And the major mobile pay players will likely be leading that discussion. 

Whether you’re talking online or offline payment fraud, there’s always a delicate balance between determining how much security is needed to protect the consumers. That balance comes with ensuring innovations are in fact creating what consumers really want: frictionless, secure payment experiences. And, as the payments history has shown, that’s not always an easy balance to achieve. Nor are those goals always mutually exclusive. 

Omnichannel And Online Fraud Management 

Digging into online fraud inevitably means looking at how the omnichannel experience is impacting how retailers deal with managing security and fraud. 

As more consumers engage with retailers through multiple channels — with an ever-increasing range of payment methods and devices — retailers are faced with added challenges, including heightened exposure to fraud risk and increased complexity of fraud management.

And, according to a recent ACI Worldwide study on omnichannel fraud management, more than 50 percent of retailers are ill-prepared for the inevitable increase of fraud attempts.

“It is clear from our study that many retailers feel unprepared to face the fraud challenges of an omnichannel world,” said Mike Braatz, senior vice president, ACI Worldwide. “There is a need for strategic and organizational changes and an integrated approach to creating a true omnichannel environment for payments and fraud management.”

For mobile payments players, the pitch is always the same: reminding consumers that contactless payment options, in-app payments and online payment options present a token instead of card numbers. While consumers aren’t the easiest group to convince of the merits of mobile payments security, retailers aren’t an easy group either. 

study conducted by market research firm Ovum showed that more than half of retailers across the world aren’t investing in new payments technologies because of their hesitancy surrounding security concerns. In fact, in the survey that consisted of nearly 700 global retailer executives, 54 percent of them named security as a top barrier to increasing their investment in payments.

It appears even in times that retailers realize they need to keep up with the changing tides of the payments industry, security fears are holding them back. 

Because mobile transactions are still relatively new in the grand scheme of the payments technology evolution, it’s hard to project how the rate of online fraud will change since we don’t know the rate of how rapidly consumers are willing to adopt new technologies. But what we do know is that mobile payments has created a shift in how the payments industry talks about fraud and security. 

“The seismic shifts now happening in the payments markets mark an unprecedented period of potential disintermediation for some and long-term advantages for others, and it is unclear exactly how the dust will settle in the years ahead,” Ovum’s report concluded.

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