With over half the web’s traffic coming from mobile devices, it’s no surprise that a large portion of online payment transactions come from mobile apps. Whether it’s investing, money transfers, or digital payment processing, billions of dollars funneled through mobile devices create an attractive target for cyber-criminals.
Fraud affects consumers, but it’s also extremely costly for businesses. Not only do businesses lose money on transactions, but fraud can also affect brand reputation, revenue, and customer loyalty.
What are Mobile Payments?
Before getting into mobile fraud detection, it’s important to understand the many ways users can make payments from their mobile devices and how cyber-criminals mimic them. If a business owner allows payments from mobile-only applications, then any fraud prevention strategies must be specific to mobile transactions.
Mobile payments are transactions conducted using a mobile phone and a payment instrument like a bank account, debit/credit card, transport card, or a mobile wallet like PayPal. In banking and finance, a few examples of mobile payments include consumers paying for services from their smartphone, transferring money between accounts, or moving money from their account to another. These payments can be made using digital wallets or peer-to-peer platforms.
Some digital wallets also allow users to send money between individuals, meaning a small business contractor or service provider can receive money directly. For example, an individual can fund their investment account directly from Venmo or CashApp, making the process of funding convenient and fast.
Peer-to-peer payment apps are somewhat different from standard merchant transactions. Instead of paying for a product in a merchant-customer relationship using a payment processor, peer-to-peer payment apps allow individuals to send and receive money directly, which is convenient but adds risks of fraud to both customers and businesses.
Digital wallets and peer-to-peer payment apps have been popular for years, but popularity skyrocketed in 2020 due to COVID-19 and pandemic lockdowns. Convenience and speed of money transfers play a large part in digital wallet popularity, but having the ability to pay for products and services using mobile apps was critical to everyday business from 2020-2021 during pandemic lockdowns and popularity continues to rise. As a matter of fact, mobile and contactless payment transaction values are expected to triple from $2 trillion in 2020 to $6 trillion in 2024.
Fraud in Mobile Payments
Because mobile payments are a trillion-dollar industry, it’s worth billions to fraudsters and organized cyber-criminal groups. Losses from online payment fraud are expected to increase to $343 billion by 2027, which makes it financially beneficial for cyber-criminals. Every merchant is a target, but some transactions are at a higher risk than others. For example, payments for plane tickets are much more likely to be from fraudulent activity than physical orders. The size of the payment is also a risk factor. The same case study found that mobile transactions over $1000 are more likely to be fraudulent than those under $200.
Attacks on the ways businesses handle mobile payments can be swift and cost organizations millions within a short period of time. As an example, a UK bus company, Ensignbus, allowed riders to use Monzo and Revolut for bus fare but was forced to limit transactions to a mere £10 (approximately $12) to stop fraudulent contactless payments after it lost £10,000 (approximately $12,066) within three months. Because of the rise in fraud using Apple Pay and Google Pay, Ensignbus no longer accepts both digital wallets.
4 Types of Mobile Payments Fraud
The ways that cyber-criminals approach payment fraud varies according to their goals, their ability to get necessary data, and the amount of financial gain. A few types of mobile payment fraud include:
1. Identity theft:
Personally identifiable information (PII) could be stolen from business resources, social engineering, or phishing, but the ultimate goal is to usually sell the information on darknet markets or use it to open fraudulent financial accounts.
2. Account takeover:
Users provide their credentials to cyber-criminals via various phishing and social engineering methods, or they could have their credentials compromised from a third-party data breach and use those same credentials on multiple online accounts, making accounts vulnerable to being hijacked.
3. Synthetic identity fraud:
A combination of fabricated information and true identity data is used to create financial accounts that could be linked to a specific individual.
4. Friendly fraud:
Legitimate customers may claim fraudulent refunds from chargebacks using loopholes in application bugs or business workflows.
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Fraud.net provides these features in their suite of products and services:
- Real-time, actionable alerts to proactively detect transaction fraud.
- Risk scores associated with individual transactions.
- Thousands of customizable risk-based rules and workflows specific to an organization’s industry.
- Fraud trend visualization and interpretation to optimize the risk management process.
Want to learn more about how your business can prevent the types of fraud that result from inflation, recession, and war? Download our free eBook: Take These Steps to Prevent Mobile Payments Fraud
Or, request a demo with our solutions consultants today to learn how AI can help you stop fraudsters in their tracks.