More Mobile Payments This Year Will Likely Mean More Fraud Potential, FICO Warns

To the extent there is greater mobile-payments use among merchants and consumers this year, that increase will likely bring with it a greater potential for fraud. That’s the cautionary note from Fair Isaac Corp. executive T.J. Horan, vice president of fraud solutions at the analytics-software company.

In-store mobile payments will gain some traction this year, Horan says, “thanks to the push from big retailers, like Walmart Pay, but will still be used minimally by end of year.” While these retailer-based mobile payments efforts are more about controlling the payment transaction than about customer convenience, Horan says, consumers will use them and fraud will follow.

“Any time there’s change, there’s opportunity for fraudsters to exploit weak links,” Horan tells Digital Transactions News. That opportunity comes in the form of new ways to pay, which generate some confusion at banks, processors, and points of sale that have yet to be fully hardened against attacks from criminals.

As Horan points out, Apple Inc.’s Apple Pay was subject to account takeover fraud within the first few months of its launch as criminals found ways to game issuer-verification protocols.

The substitution of mobile payments for physical credit and debit cards at the point of sale “leads to some opportunity for fraudsters to social-engineer their way through a checkout,” Horan says. Mobile payments backers, be they retailers or other organizations, must balance the differing goals of the enrollment process and security, he says.

Anti-fraud efforts also must incorporate the type of account—in addition to credit and debit cards, checking accounts also can be linked in many instances—that funds a consumer’s mobile payments wallet, Horan says. The payments industry’s move to faster payments will challenge anti-money laundering and know-your-customer efforts, he says.

Regulators, too, will be taxed by the increasing pace and expanding variety of payments. “As the rate and pace of payments start to pick up, it will put pressure on the regulatory agencies,” Horan says. “They will continually look at analytics to help them look at that.”

Fair Isaac produces the FICO risk score used by many card issuers.