Merchants need to optimize their website and checkout, so they are not losing potential revenue coming from mobile. It is equally important to create specific fraud strategies for mcommerce, so fraudsters do not take advantage of the smooth check out process you created.
Although mcommerce is a subset of ecommerce, it is necessary to make a distinction between the two channels to boost sales and prevent fraud. Why? There are variations on how customers shop ecommerce sites verses mcommerce—like in-app purchases on mobile devices. This means that different fraud indicators can be reliable for one channel, and create false positives in another.
Mobile commerce requires merchants to create a separate fraud and optimization fraud management strategy. Read on to learn the basics of mcommerce and dive into the types of mobile commerce fraud merchants need to know.
What is Mcommerce?
Mcommerce, otherwise known as mobile commerce, is when a cardholder purchases goods or services on a mobile device. Mcommerce is growing. In 2019, mobile devices accounted for 49% of global website traffic, followed by desktop traffic at 47%. As more customers use this channel to shop mobile sites and apps, merchants need to be aware of both the revenue opportunity and the potential fraud from mobile shopping.
Types of Mcommerce Fraud
When stolen credit card credentials are successfully used to purchase goods or services, it’s called true fraud. True fraud results in the cardholder disputing the fraudulent purchase and the merchant receiving a dispute they can't win. To prevent true fraud from happening in general, merchants need to set up front end fraud filters and fraud scoring to stop fraudulent transactions from being accepted.
Merchants should create two separate fraud filter processes for ecommerce and mcommerce purchases. Mobile commerce gives customers the luxury of shopping anywhere at any time, which means mobile purchases aren't as easy to track. For example, it’s common for merchants to validate a transaction by IP address if a customer has shopped with the merchant before. However, this would not be accurate for a customer that made the original transaction at home and is now making a mobile purchase in a waiting room, at lunch, or a friend's house. Some signs of fraud will be the same for both ecommerce and mcommerce purchases, but merchants need to create separate fraud filter strategies for both channels to address fraud types unique to each one.
Account Takeover Fraud
Account takeover fraud is when a fraudster obtains valid log-in information to take over an online account. After gaining access to the account, the fraudster can take advantage of masquerading as a customer. The fraudster's activities could include selling the account information on the dark web, making transactions with saved card credentials, transferring loyalty points, or any other activity with the account that could make money.
Account takeover fraud has flourished because customers do not change their username and password from account to account. This creates an easy process for fraudsters to take over multiple accounts after they have gained access to just one.
A subset of account takeover fraud is loyalty program fraud, which is heavily targeted by fraudsters. After a fraudster gains access to an account with reward points, they will transfer the points to a dummy account or use them immediately. Customers and merchants do not view the points as currency, so there is less security surrounding loyalty points. Which makes apps that store loyalty points an appealing target for fraudsters.
There are three types of payment fraud. The first we mentioned earlier: true fraud. The other two types of fraud are chargeback fraud and friendly fraud. Chargeback fraud is when a customer makes a purchase, then purposely abuses the dispute process in an attempt to get their money back while still retaining the goods or services received. Chargeback fraud could be driven by buyer's remorse, wanting to sell the product or a variety of other reasons. Friendly fraud is when a customer mistakenly disputes a charge. There is no malicious intent, just simple forgetfulness, unclear merchant descriptors, or a family member making a purchase.
The nature of mobile shopping and mobile payments allows customers to make spontaneous purchases. Mobile purchases can go from a social media ad to the merchant's website, to check out, without ever leaving the social media app. This ability is an example of what can make these spontaneous mcommerce purchases happen. On average, mobile purchases are at a lower ticket price. This means customers are purchasing a $35 shirt on mobile, but not a $600 piece of furniture. The combination of spontaneous purchases and a lower price point can create situations of friendly fraud by customers not remembering what they bought when they look at their account statement. Or even chargeback fraud when they regret their spontaneous purchase.
Making Mobile Checkout Too Easy
Mcommerce sales are predicted to make up 44.7% of total US ecommerce sales this year. This level of traffic makes a mobile-friendly website and check out a priority for merchants. A Statista study found that ecommerce shopping on desktops had a conversion rate of 3.9% while mobile shopping had a conversion rate of only 1.6%. With customer's low tolerance for friction, merchants may be tempted to optimize the mobile checkout process and lower security. Skipping steps in the checkout process can create the risk of accepting fraudulent purchases resulting in a true fraud dispute. Or if merchants receive an invalid dispute, they may not have collected enough evidence to prove the dispute is friendly or chargeback fraud.
Finding the Balance
As mobile commerce continues to grow and customers become more comfortable shopping via social media, apps, and mobile browsers, merchants need to keep an eye on the mobile shopping channel. Merchants need to optimize their website and checkout, so they are not losing potential revenue coming from mobile. It is equally important to create specific fraud strategies for mcommerce, so fraudsters do not take advantage of the smooth check out process you created.