September 28, 2010, 1:11 PM

Mobile raises new fraud risks for merchants

A new study provides advice on how to combat mobile fraud.

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More than 1 in 4 retailers that aren’t yet engaged in mobile commerce will be launching during the next 12 months into the fast-growing market that is so new that few merchants or experts can identify the inevitable fraud risks, a new study finds.

The percentage of fraudulent transactions for web-only merchants is 0.83%, for multichannel merchants with both an e-commerce site and bricks-and-mortar stores the percentage is 0.86%, and for multichannel merchants with an e-commerce site, stores, and an m-commerce site or app the percentage is 1.13%, according to the “2nd Annual True Cost of Fraud Study,” conducted by LexisNexis Risk Solutions and Javelin Strategy & Research.

“A lot of retailers moving into m-commerce are looking to expand their reach, but they are also opening themselves up to new exposures to fraud,” says Jim Rice, director of market planning for retail and e-commerce markets at LexisNexis Risk Solutions. “We’re seeing an increased fraud rate for merchants using the mobile channel; the study can’t attribute the increased fraud directly to mobile, but when merchants open up new channels, it opens them up to new fraud opportunities.”

What LexisNexis and Javelin can attribute to mobile commerce is its newness: Because the sales channel is still nascent, the companies say, there are likely to be new types of fraud that have yet to be pinpointed or understood.

“The fact that retailers are just getting their arms around m-commerce makes it unique and a channel that exposes them to additional fraud,” Rice says. “All the exposures to fraud aren’t fully understood yet. The merchants in m-commerce are at the leading edge to open up the channel to attract new customers, and they are also opening themselves up to fraud.”

To combat mobile fraud at this stage of the game, the study recommends that merchants looking at mobile commerce first fully understand what fraud prevention techniques they have in place that can be used to help identify fraud, regardless of sales channel.

“They must make sure to lock in place the best fraud techniques that can help them identify fraud before opening up another channel,” Rice advises. “While mobile is a low overall percentage of fraud, it is still significant to those in the mobile space. So before you enter the space you have to lock down things like identity-based solutions that can really help eliminate fraud as you enter the space. Understand the techniques you have in place, make sure they can go across channels, and make sure you have best practices in place before you go into mobile commerce.”

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