Merchants around the world lost approximately $38 billion to online fraud in 2023, but that’s just the tip of the iceberg. The losses are projected to rise to $91 billion by 2028, with the growth of digitized payment services being the main factor behind the increase.
Keeping Fraud Away from Mobile Payments, a new white paper released by TPAY Mobile, assembles some of the latest data on these increasingly dangerous scams. One reason the problem is so pernicious is that merchants, on average, accept 4.6 payment methods. With 8 out of 10 merchants accepting at least one new payment method over the past year, retailers can find it difficult to keep up with the most advanced mobile payment fraud schemes.
Online payment methods are among the most vulnerable to fraud. Even though they are the most widely accepted forms of payment, cards and digital wallets are perceived as having the highest fraud rates, according to TPAY. Digital wallets are the fastest-growing payment method, projected to account for nearly half of the global transaction value across e-commerce and points of sale by 2027.
Not surprisingly, in a bid to combat fraud, 90% of all merchants encourage customers to pay with certain preferred payment methods, usually by prioritizing or promoting these methods at checkout. In addition, more than 90% of merchants employ at least one tool or technique, such as automated retries, designed to boost payment authorization rates.
The Challenge of Friendly Fraud
Another challenge for online merchants is friendly fraud, or first-party fraud, which occurs when a cardholder reports a legitimate transaction as fraud. Such first-party misuse can make up as much as 75% of all chargebacks, according to Javelin Strategy & Research.
Merchants used to be able to handle these disagreements personally, but with so many transactions conducted online, consumers can anonymously deal with their card issuer instead. “This liability shift relieves merchants to some degree and puts more onus on issuing banks, which means both have incentive to shore up authentication mechanisms to verify the authenticity of transactions and their accountholders,” said Tracy Kitten, Director of Fraud & Security at Javelin Strategy & Research.
That points to a serious challenge in fighting payments fraud: Many of the scams originate from trusted accounts on trusted devices. According to the TPAY report, The Outseer Research team found that 75% of fraudulent online banking payments activities originate from places that accountholders assumed were safe and reliable.
