Why Mobile Commerce Fraud Is Increasing

Mobile phones have forever changed how we shop, connect, and engage with businesses. Smart businesses have embraced lucrative new mobile commerce (m-commerce) opportunities with mobile-friendly websites and apps. And yet, as businesses see more and more purchases via mobile, they’re finding their fraud exposure is also increasing.

Researching and buying items from around the world, right from the device in your hand? It isn’t surprising that consumers have embraced m-commerce. According to a recent article published by Forbes, 91% of consumers make online purchases using their smartphone. Further, m-commerce is estimated to make up 44.6% of total U.S. retail ecommerce sales in 2024. 

While consumers of all generations use smartphones to make purchases, for millennials and Gen Z this is their primary shopping channel, according to our fourth-annual report on consumer attitudes.

Mobile Commerce Crosses Generations

Smartphones are used by the majority of adult generations, according to Whatsthebigdata.com:

However, how frequently they use their smartphones for shopping varies by generation, as our Consumer Attitudes report discovered. For older shoppers, there is still a comfort level with shopping on a laptop or PC: 

How online consumers shop

Globally and across generations, mobile and laptop/PC are the top channels.

• Mobile (58%)
• Laptop/PC (53%)
• Tablet (14%)

Millennials and Gen Z are heavy mobile users

Use smartphones to make purchases half or more of the time:

• Millennials — 74% 
• Gen Z — 68% 

Use smartphones to make purchases most of the time:

• Millennials — 58% 
• Gen Z — 54% 

Gen X embraces both mobile & laptop/PC

• Mobile: 60% use smartphones half or more of the time, and 47% use them most of the time.
• Laptop/PC: 52% use smartphones half or more of the time, and 36% use them most of the time.

Baby boomers still haven’t surrendered their laptops and PCs

• 55% use their laptop/PC for online purchases half or more of the time.
• 46% use their laptop/PC to make purchases most of the time.

Younger generations are more likely to experience fraud

One of the reasons younger shoppers prefer m-commerce is the lure of social commerce, the buying and selling of goods or services directly within a social media platform like YouTube, TikTok and Facebook. By 2025, social commerce retail is expected to exceed US$79 billion in sales in the United States and top $1 trillion globally, according to our original research. 

Of course, the immature nature of social commerce makes it a target for fraud. Using phishing or brute force hacking, fraudsters can take over a victim's social media account. Once in, that access may grant them login access to other websites the victim linked to their social media account.

Let’s explore the vulnerabilities of m-commerce to fraud in more detail.

Types of Mobile Fraud

In the mobile environment, consumers may visit a website using a progressive web application (PWA) accessed through a browser. But these days, more often than not, shoppers are connecting through proprietary mobile applications that aren’t necessarily as secure. That’s a problem, because fraudsters can wreak havoc by leveraging the trust that generally comes from downloading a mobile application. 

The mobile environment isn’t free from the types of ecommerce fraud found on other platforms, like account takeover (ATO), friendly fraud, and phishing. But there are new variations that are more common with mobile transactions:

Smishing (a combination of “SMS” and “phishing) is a social engineering attack that uses fake mobile text messages to trick people into downloading malware, sharing sensitive information or sending money to cybercriminals.

Brand impersonation fraud is accomplished in two ways:

• In a typical SMS brand impersonation attack, fraudsters send a message asking recipients to click on a link to verify account information, claim a prize or change their password. While the link may look legitimate, it leads victims to a site that harvests their data for resale on the dark web or for use by the scammers who sent the text messages.
• In an app impersonation scam, malicious actors publish apps that appear to be from trusted retailers or service providers. Customers who don't realize the apps are fake may install them, putting themselves at risk for credential theft, card fraud and malware injections on their mobile devices. 

The Causes Behind Mobile Fraud

Why do mobile transactions have this increased fraud risk, and what should businesses do to mitigate it?

Here are five reasons for the elevated levels of mobile fraud:

1. Fraudsters are drawn to new opportunities. Fraudsters love a challenge, and the developing m-commerce environment provides them the opportunity to take advantage of and conquer this new channel.
2. Many m-commerce businesses use weak fraud mitigation solutions. Many businesses don’t understand that mobile transactions require customized fraud protection strategies, so they end up using the same (and often inadequate) fraud protection strategies across all channels.
3. Businesses lack the comprehensive m-commerce data to flag questionable transactions effectively. As a relatively new channel, mobile transactions don’t have the same volume of data points as other transaction types, meaning it’s significantly harder to develop robust fraud algorithms to evaluate mobile transactions.
4. Multichannel businesses have an increased exposure to fraud. For example, larger businesses are processing mobile transactions and allowing in-store pickup — but they often fail to re-swipe the purchaser’s credit card on-site to confirm the purchase. Such policies increase the likelihood of a fraudster getting away with valuable merchandise.
5. Businesses are overconfident in mobile payment security. Mobile commerce businesses may place too much faith in the safety of mobile payment options, like Apple Pay and PayPal.

As m-commerce continues, the costs of — and exposure to — fraud will continue to increase, unless businesses adjust their approach to fraud protection by:

• Implementing strategies like device identification and geolocation to help identify m-commerce fraud attempts.
• Focusing on risk management as closely as they concentrate on the customer experience.
• Establishing processes to track online and mobile fraud separately so they can better understand their vulnerabilities and develop the appropriate fraud protection solutions and technologies.
  
  

A Comprehensive Approach to M-Commerce Fraud Prevention 

At ClearSale, we study fraud as a discipline. Our knowledge of fraud stems from our long history in the industry and our unmatched experience fighting fraud. We’re tuned in to emerging trends in fraud, so we’re aware of how new areas of online commerce, like mobile and social, are being targeted. 

Our massive transaction database is constantly learning as more orders are processed. We work with businesses around the world — in some of the most high-risk regions and industries — to help businesses make more accurate decisions and prevent false declines, while approving more orders, faster. 

By applying all this real-time intelligence, we can identify fraud trends as soon as they emerge. We’ve used those insights to build a multilayered process to preemptively identify suspicious behaviors and distinguish legitimate orders from fraudulent ones:

Machine learning/AI

Artificial intelligence and machine learning are used to screen all orders, processing transactions and refining fraud models based on customer behavior. A fraud score is assigned to each order. Those that achieve a score within customer-specific thresholds are automatically approved, while those with questionable or suspicious scores are flagged for additional review.

Contextual fraud review

Suspicious and questionable orders receive a secondary review from our data scientists and fraud analysts. They then share their expertise and knowledge of current fraud trends with the client’s team to assess the validity of transactions. Optionally, our analysts can contact customers directly — always in a friendly and diplomatic manner — to verify purchases, simultaneously training your team in these practices.

Interactive client dashboard

Through our interactive dashboard, clients can review all orders and participate in contextual reviews. That allows them to weigh in on VIP clients and orders that may be automatically approved in the future. Clients can use the dashboard to monitor chargebacks on approved orders, facilitating easier dispute resolution by ClearSale’s comprehensive chargeback management team.

Post-processing audit

Machine learning and AI are used post-processing to validate decisions and identify emerging patterns. In a secure testing environment, our audit analyzes randomly selected declined transactions, exploring potential outcomes had the orders been approved. This assessment of the accuracy of the automated rules set by our clients allows for their ongoing refinement. 

Unfortunately, failing to understand the risks of m-commerce fraud may open businesses up to more fraud exposure. The successful businesses will be those that are not only optimized for mobile commerce but that have also secured all their commerce channels and selected and implemented a robust fraud solution that’s customized to the channel.

Contact ClearSale today to learn how our multilayered approach can help businesses increase revenue, improve customer satisfaction and reduce fraud.