The number of people who shop online using their smartphones is on the rise. Mobile web browsing and stronger levels of security allow consumers to purchase merchandise quickly without having to use a computer. Visit a website, find an item, add the item to the cart, and click buy. Some mobile browsers save credit card information securely, eliminating the need to enter credit card information repeatedly.
For merchants, mobile payments have benefits and disadvantages, which may cause some traders to wonder whether mobile payments are worth accepting. However, not allowing customers to make mobile payments means turning away potential sales. For a merchant with a high-risk merchant account, the impacts are greater. Wider access to more customers means the possibility of an increase in fraudulent purchases. Are mobile payments truly problematic? Discover some of the perks and pitfalls merchants may encounter.
For merchants, mobile payments create the sense that less security is present compared to a typical online transaction. The concept of paying through a cell phone is still in its infancy for secure operations that reduce fraud.
Card processing algorithms rely on data points to draw attention to the fraudulent activity. For example, when a consumer uses a credit card online or as an over-the-phone payment, detection systems flag certain types of activity. If the action doesn’t match the typical purchasing pattern of the card owner, the card becomes flagged, and the account becomes locked.
Credit card processing services use considerably more data points for flagging and deactivating a card for questionable in-person, online, or telephone transactions than for mobile device sales. Also, the cost of a fraudulent mobile transaction is the highest among all the forms of payment. For every dollar of a fraudulent transaction, a merchant spends about $3 in lost merchandise and related activity fees.
Another issue that plagues mobile payments is the device IP address. Any device that connects to the Internet uses an IP address. But tracking an intellectual property address on a smartphone is harder than following an IP address on a PC. The IP address is an invaluable tool in fraud detection, especially for detecting a purchase made from a foreign country when the nominal card owner lives in the U.S. The lack of IP tracking for a mobile device makes determining whether a purchase is fraudulent or not tougher for merchants.
Phone theft is another major issue. When a thief steals someone’s smartphone, the criminal gains access to much sensitive financial information. Mobile device browsers can carry credit card data if the devices sync with the home PC. If the phone isn’t shut down through a remote lockdown, the thief can have time to crack the screen lock and begin shopping.
In the case of mobile payments, thieves can treat themselves to monetary gains at the expense of others. To that end, criminals create methods and systems to break into mobile phones, engage in social hacking, and exploit weaknesses in existing payment systems.
Coffee and specialty drink retailer Starbucks had a problem with thieves using the Starbucks app on stolen phones to purchase gift cards. Once the criminals had access to the online accounts of their victims, they’d add a new gift card, transfer the funds, and repeat the process, again and again, each the time original Starbucks gift card reloaded.
A multitude of security solutions are available for mobile payments — it’s simply a matter of enabling the security features. Many sites already use a two-step security process when someone accesses an account from a mobile device. An alert appears to notify the user that the site doesn’t recognize the IP address and requires further information to confirm identity. We use this simple but effective security measure to combat fraud.
The largest security problem presented by mobile payments is the difficulty in definitively locating the person who is committing the fraud. Mobile users are, by nature, mobile, and the cell phone signal moving from tower to tower makes tracking a thief more difficult. But merchant service providers and credit card companies are focusing more on identifying fraudulent mobile payments to prevent processing these purchases. Identify verification services for mobile devices are also becoming faster at recognizing fraud and rejecting a fraudulent purchase attempt.
The rise in mobile fraud shouldn’t stop companies from accepting mobile payments. The amount of fraud committed makes up a small percentage of all transactions, and some businesses may not record a fraudulent transaction in the course of business operations. Accepting mobile payments and offering customers payment flexibility is an advantage for merchants.
Allowing limited opportunities to make a purchase, such as only by telephone, in-person visits, or desktop computers, can present several inherent problems. A customer could forget to follow through with an intended purchasing decision. In another case, perhaps a customer can’t get to a computer in time to settle an outstanding debt.
An increasing amount of mobile users has taken to using their phones to make payments for bills or purchases for products. Accepting mobile forms of payment gives customers some peace of mind knowing that the items they purchased will arrive soon at their homes.
Online retailers who don’t currently allow mobile payments will begin to see some shifts in buying decisions as e-commerce rises and overtakes traditional brick-and-mortar retail operations. As fraud detection technology for mobile methods of payment continues to evolve, merchants should be able to realize the opportunities to capture sales and attract customers by allowing mobile payment methods. In turn, consumers are more likely to return to do business with those merchants, knowing they can shop for goods and services from where they happen to be, whether at work, at home, or on vacation. What are your thoughts about the perks and pitfalls of accepting mobile payments?