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Report: Mobile commerce fraud increased in 2014

Revenue that mobile commerce merchants lost to fraud spiked 70 percent in 2014 to 1.36 percent compared with 0.80 percent in 2013.

Revenue that mobile commerce merchants lost to fraud spiked 70 percent in 2014 to 1.36 percent compared with 0.80 percent in 2013, according to a new report from LexisNexis Risk Solutions Inc. For comparison, all merchants lost 0.68 percent of revenue to fraud in 2014 in comparison to 0.51 percent in 2013.

The study results show that m-commerce merchants accept an average of 4.5 payment channels, significantly more than the 2.6 channels accepted by all merchants. Those companies have more fraud exposure than other types of retailers, according to the study.

More than one-fifth (21 percent) of all fraudulent transactions are attributed to the mobile channel, which is disturbing due to the fact that the number of transactions occurring through m-commerce channels is still low for the average m-commerce merchant. In 2014, 14 percent of all transactions were accepted via m-commerce channels.

Dennis Becker, vice president of corporate markets for LexisNexis Risk Solutions said, "Mobile commerce is going to be more widely adopted by merchants because customers are clamoring for the convenience. To reduce customer friction and sell more through the mobile channel, now is the time for m-commerce retailers to put in place fraud prevention tools to counter the disproportionate amount of fraud that is currently occurring."

In addition, merchants are struggling to manage costs for merchandise sold through the mobile channel. The LexisNexis Fraud Multiplier cost for the mobile channel rose to $3.34 in 2014 from $2.83 in 2013, a result of the expansion of the mobile channel into physical goods markets.

"Mobile commerce merchants have an opportunity to strategically implement mobile channel-specific fraud prevention measures," Becker said. "The findings of this study suggest that the more mobile commerce companies move away from a 'one-size-fits-all' fraud strategy, the faster they will grow and be more profitable."

Based on the study results, customer identity verification is the top fraud prevention challenge for mobile commerce merchants, followed by friendly fraud. The inability to confidently verify the identity of customers and their devices leads to friendly fraud, which is defined as fraud perpetrated by a family member or close associate. The study shows that 24 percent of fraudulent transactions are friendly fraud.

"We expect this percentage to drop, as more m-commerce merchants adopt mobile channel-specific fraud prevention tools," Becker said.