By Ron Hynes, CEO of Vesta

Over the last 20 years, the payments industry has changed greatly. Contactless cards, mobile payments, and digital wallets, once in their infancy, are becoming ubiquitous, with new payment systems being developed left and right. When Apple Pay was first introduced in 2014, mobile wallets were predicted to be the next big thing; however, that certainly wasn’t the case right away. While adoption was slow, fast forward to six years later, add a pandemic to the mix, and suddenly, mobile wallets are in everyday use.

Since the start of the pandemic, consumers have become more digitally connected than ever before, likely changing their behaviors for good – from how they interact to how they make payments. In a survey conducted by Marqueta, 65% of U.S. consumers shared that they’ve made an online purchase through a platform, app, or store that they hadn’t previously done. With the virus driving an increase in physical distance, more consumers adopted digital wallets in order to eliminate the risk of contracting and spreading the virus.

According to a Mastercard study in April 2020, 79% of respondents from around the world said they were using some form of contactless payments. Consumers discovered the numerous benefits of contactless payments, allowing for easier, safer, and more convenient ways of making purchases from one digital location – that’s the good news.  The flipside, however, is that fraudsters have seen the pandemic and subsequent uptick in mobile wallet adoption as a greenfield opportunity to take advantage of this shift with new methods of attack.

Stopping the Spread of the Virus, Continuing the Spread of Fraud

As quickly as consumers raced to adopt mobile wallets and merchants raced to accept mobile transactions; hackers raced to attack the weakest links. Those who hadn’t put systems and technologies in place to fight mobile payment fraud were particularly vulnerable.  As a result of all this, e-tailers face many new problem areas, including data breaches, system attacks, and the ever-present threat of fraudulent sales.

Merchants, as well as other financial institutions, are projected to spend $9.3 billion annually on fraud detection and prevention tools by 2022, according to Juniper Research. But as technologies evolve and more solutions emerge, selection becomes a daunting task. Unfortunately, for many merchants, the best defense is decline.  This leads them to decline any transaction that looks even a little different, a method that does help thwart fraud, but ends up turning away a good deal of legitimate transactions as well, angering loyal customers, losing a sale and likely losing a customer.  In 2017, Vesta worked with Javelin Strategy and Research on a report surveying merchants that generated $1 million or more in annual sales, to find out just how much online retailers were spending on fraud prevention, and discovered they were spending 8.0% of their annual revenue to prevent and manage fraud. It’s time for merchants to fight back against eCommerce fraud. Fight back with tools that not only block fraud, but help grow revenue, as well.

How to Prevent Mobile Fraud

A key component of a payment fraud prevention strategy is learning to recognize suspicious purchase behavior and understanding the warning signs. For example, if a first-time customer places an abnormally-large order, or even ships to an international address, he or she may in fact be a criminal using stolen credentials.  Customers using multiple credit cards to place orders shipping to the same address, can  be another red flag.  Having the necessary resources and skill-set to investigate events, such as these, is essential.

Be aware of inaccurate fraud detection systems that are out there, which end up approving bad transactions and declining valid ones. False declines can do as much or more damage than fraud itself and it’s extremely difficult to rebuild a customer relationship once that trust is lost. Nearly $331 billion in CNP orders across the U.S. were predicted to be falsely declined in 2018, Aite Group predicted. It’s important to leverage a solution that is as proficient at knowing what a good transaction looks like, as it is at recognizing fraud.

Understanding Transactions, Reducing Fraud

Overall, the more data you gather about a transaction, the better your decisions will be. Utilizing trustworthy platforms that use decisioning engines along with both supervised and unsupervised machine learning allows you to have billions of data points for your transaction to be compared against, providing the best, most accurate determination of the transactions while simultaneously reducing fraud.

As fast as technology evolves, hackers are in lock step trying to stay ahead of the advances.  Remember, this is their full-time job as well.  Retailers have no choice but to accept all forms of payments that consumers want to offer and, therefore, they must make sure they have a line of defense to effectively stop criminals while protecting the experience for their legitimate customers and ensuring they are able to complete a transaction as frictionless as possible.