Responding to consumers' increasing mobile device usage, moreretailers of all sizes and types are relying on mobile purchases,with nearly 1 in 10 merchants accepting mobile payments in 2013, anincrease of 50% per year since 2011. But the increase in mobilepayments is also increasing the risk of fraud, especially for smallmerchants that might be less aware of fraud detection schemes,according to “The True Cost of Fraud” study, conducted byLexis-Nexis and Javelin Strategy & Research.

Mobile browers, mobile applications and mobile point-of-sale(mPOS) hardware technology such as Square have put mobile paymentswithin the reach of even the smallest merchants (less than $1million in annual sales), 39% of whom are attracted to the mobilechannel. And the trend is growing: 25% of merchants of all sizesexpect to accept mobile payments in 2014, with mPOS poised togenerate the biggest growth: 7% of merchants used mPOS devices in2013, after no merchants reporting using it in 2012.

This represents a diversification to different types ofbusinesses, such as clothing and accessories retailers and food andbeverage stores, besides the non-store retailers and electronicgoods merchants which initially used mobile payments.

But smaller mobile merchants typically rely on fewer fraudtechnology solutions, making them especially vulnerable tofraud.

The study also highlighted:

• Fraud against mobile merchants is more pervasive in credit cardfraud than debit card fraud. Nearly three in five fraudulenttransactions were credit card based, while only 23% wereattributable to debit cards.
• Although merchants view them as a higher fraud risk, mobilebrowsers are still the most commonly utilized method of acceptingmobile payments; 55% of merchants use them.
• Twenty-one percent of mobile merchants name “preventingidentity fraud” as their top challenge, compared with only 17% ofall merchants.

The study also highlighted recommendations to help combatfraud:

• Mobile merchants selling digital goods can limit their fraudcosts by thoroughly authenticating card-not-present transactionsthrough mobile devices.
• Merchants should track fraudulent activities by each channelthey offer. Currently, only 48% of mobile merchants do so.
• Maintain open communications with financial institutions andother mobile merchants to better understand the evolving nature offraud threats and solutions. Organizations like the Merchant RiskCouncil provide forums for sharing expertise and assessingconcerns.

Click on the following pages for more findings.

Giving the customers what they want

When asked the reasons for adopting mobile payment, businessesof all sizes cited convenience for the customer as the main driver.Larger retailers also use mobile payment for growing theirbusinesses and staying competitive in the market.

Small merchants, big losses

Although smaller businesses are flocking to mobile payments,they also stand to lose more, since a single fraudulent transactioncan constitute a higher share of revenue.

Smaller merchants are also less likely to protect themselvesfrom mobile fraud through anti-fraud technology, with most citingprevention as being too expensive, compared with larger merchants.

Methods of mobile payment

Although smaller merchants ar emore likely to acceptmobile-brower and app payments, mPOS use is growing,especially among small mobile merchants.

And because small mobile merchants accept many mobile paymenttypes, they are susceptible to both online and in-person fraud.

Anti-fraud technology: Tooexpensive?

Small merchants are less likely to adopt anti-fraud technologysolutions like card verification value, PIN and/or signatureauthentication, transaction verification and other techniques.

For a complete copy of the study, go to the LexisNexis site.