Mobile fraud is a challenge for merchants, and will only intensify, according to the 2016 LexisNexis True Cost of Fraud Study.

The study found that fraud cost as a percentage of revenues is higher among mCommerce merchants; there is greater concern about the security of allowing mobile transactions; and, there is a significantly high number of lost transactions per month to fraud through mCommerce. All of this will intensity as the mCommerce channel is expected to grow during the next 1 -2 years. While less than one-fifth currently optimize for mobile transactions, a sizeable portion (32%) report considering it in the next 12 months.

According to the study, large eCommerce and mCommerce merchants are challenged on various fronts, including an increased volume of successful fraud attempts, a rise in fraud cost/dollar losses and a bigger bite of fraud costs as a percent of annual revenues. At the same time, these large remote merchants are investing in resources to combat these issues, ranging from adopting multiple fraud mitigation solutions to the use of automated fraud flagging systems.

That said, there is frustration with the cost of managing fraud, tjhe report noted, while still battling the expense of manual reviews and challenges of false positives. In fact, large remote merchants who use an automated flagging system and multiple fraud mitigation solutions still send a sizeable portion of flagged transactions for manual review, suggesting that they don’t fully trust their solutions to delineate between legitimate and fraudulent customers.

But, perhaps the right combination or layering of solutions aren’t being used. Study findings show that a multi-layered approach that includes identity verification, identity authentication and transaction risk assessment can reduce false positives and the need for manual reviews. While this may not slow the volume of fraud attempts, it can reduce the level of successful fraud transactions and the associated costs of such losses. The following presents key findings and recommendations to help merchants understand and navigate this challenging environment.

Other report findings include:

  • Retail fraud continues to rise dramatically as does its cost. The average volume and value of fraudulent transactions has risen sharply since last year. The level of fraud as a percentage of revenues has also inched upwards (1.32% to 1.47%). Each of these contributes to a rise in the LexisNexis Fraud Multiplier.
  • Larger remote channels are driving the above increases, as they continue to experience the higher share of fraud. These are omnichannel merchants who, on average, experience significantly more fraudulent transactions per month, involving higher ticket items, than physical point-of-sale (POS) only merchants. They also miss more fraudulent transactions than are prevented. As a result, fraud costs as a percentage of annual revenues are much higher for larger remote channel merchants than for other merchants.
  • Many merchants track fraud costs by either the payment channel (in-store, online, mobile) or payment method (credit / debit card, etc); fewer are tracking by both methods,making the efforts to manage fraud less effective.
  • While large remote channel merchants spend on fraud mitigation, some still need to be convinced of solution effectiveness. Nearly two-thirds of Large eCommerce and mCommerce merchants report using an automated system to flag fraud; over three-fourths indicate using a fraud mitigation solution (often multiple). However, nearly half of transactions flagged as potentially fraudulent are ultimately decided by human beings, as these channels spend up to 25% of fraud mitigation budgets on manual reviews. Further, false positive rates and fraud costs continue to grow as these merchants pour money into multiple fraud management tools with seemingly modest success. As a result, their optimism that reduced fraud can increase loyalty and sales is tempered by their frustration that managing fraud costs too much.
  • Merchants benefit more when relying on a multi-layered approach to fraud mitigation solutions. Study findings show that those using multiple solutions which layer in identity verification, identity authentication and transaction risk assessment experience fewer false positives and successful fraud attempts than those who don’t. In fact, findings show that those who use multiple solutions, but not in a layered approach as noted above, experience similarly higher false positives and successful fraud attempts as those who use very few solutions.
  • International remote merchants need more information on which fraud mitigation solutions are best for cross-border transactions. Many don’t feel that they’ve got specialized tools for international fraud prevention, while at the same time they are challenged to readily identify what those solutions would be.

Source: http://www.securitymagazine.com/articles/87147-report-details-trends-in-retail-fraud-mobile-fraud-to-increase