Mobile Commerce: The Next Fraud Frontier

As mobile payments and commerce become more commonplace, fraud associated with them does too, which means yet another potential security headache for banks.

As we've seen in recent weeks, even physical POS terminals are not safe from cyber attacks and fraud attempts. With the attacks targeting Target, Neiman Marcus and other major retailers last month, cyber security and fraud prevention is in the public mind more than ever right now. And this means banks must be more vigilant than in the past. If a third party, such as a retailer or vendor, gets hacked and valuable financial data gets stolen, a bank will still be partially blamed in the court of public opinion even if it was not at fault.

The next frontier in the security war may be in the realm of mobile commerce, according to a new study released this week from LexisNexis in conjunction with Javelin Strategy & Research.

The study found that more retailers than ever before accept some form of mobile payments, but rely on fewer fraud solutions in that channel. LexisNexis reports that the mobile browser and mobile applications represent the dominant acceptance channels for mobile commerce with 55 percent and 38 percent of mobile merchants accepting these channels, respectively. However, the largest growth channel is in mPOS (mobile point-of-sale) hardware; seven percent of merchants used mPOS in 2013 after no merchants reported using it in 2012. Another key segment that is growing according to the study is small merchants, with the study reporting that 39 percent say they are attracted to the mobile channel, but also that their fraud levels are high because they are less aware of fraud detection schemes.

Unfortunately, a bank can't control the fraud prevention systems retailers and other third parties have in place. So what's the answer? While there's no way to completely prevent mobile fraud, cooperation plays a big role in mitigating it. The LexisNexis study suggest that retailers accepting mobile payments should maintain open communications with financial institutions and other mobile merchants to better understand the evolving nature of fraud threats and solutions.

Meanwhile, a SWIFT whitepaper from last year says cooperation between banks, merchants and payments systems is necessary, though it can be sometimes difficult to realize these partnerships. "Not one single bank or mobile network operator covers the whole world, so there is a need for cooperation and partnerships," the paper reads. "Joint ventures between mobile network operators may not be obvious as they are very competitive on their core voice and data business. Joint ventures with banks may not be obvious as parties have different business objectives, different perspectives on revenue sharing, and different mind sets."

Ultimately, preventing fraud in any channel requires cooperation between the different stakeholders, not bickering. Cooperative efforts are needed in the new cyber security world we live in.

[See Also: Can Security Be More Than the Topic du Jour?]

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio