A new study released by LexisNexis on Monday showed that fraud remains a real concern in the rapidly growing mobile payments industry.
The study, which was conducted by LexisNexis and Javelin Strategy & Research, found fraudulent mobile transactions translated to $2.83 in fraud costs for every dollar of actual losses.
Because mobile purchases are generally “card-not-present purchases,” fee and interest liability to financial institutions comprises 27 percent of all costs associated with mobile payment fraud.
The rapid growth of the mobile payments industry has presented new fraud prevention challenges for retailers that increasingly adopt the technology.
The study found that nearly 10 percent of all retailers accepted mobile payments last year. Acceptance of mobile payments has grown at approximately 50 percent per year since 2011, with 25 percent of merchants indicating that they plan to accept mobile payments this year.
While the mobile browser and app remain the primary acceptance channels for mobile payments, the largest growth channel identified in the study is emerging mobile point-of-sale hardware. Seven percent of mobile merchants accepted payments through mPOS hardware in 2013, compared to no use in 2012.
Mobile growth among small merchants has been driven by mPOS technology, which allows retailers to accept payment cards with low start-up costs. The study said that while card acceptance could boost sales for small merchants, they are also exposed to the largest payment channel for fraud risk.
“(Small merchants are) driving an increase in the percent of revenue lost to fraud among all mobile merchants, because they use fewer fraud-technology solutions (two solutions, compared to four solutions used by large merchants),” the study said.
Mobile merchants that participated in the study said three in five fraudulent transactions involve credit card payment, more than double the 23 percent involving a debit card.
The study also found that while “the fraud-prevention reputation of mobile apps is justified,” merchants that accept mobile app payments are “unequipped to handle the fraud that accompanies the additional transaction volume the app facilitates.”
“As such, m-commerce merchants who accept payments through a mobile app experience greater fraud as a percent of revenue than those who accept mobile payments only through the mobile browser,” the study said.