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Premium Rate Fraud Costs UK Mobile Industry up to £140m per year

March 2011 by Marc Jacob

BillingScore announced that the UK mobile industry is losing up to £140million a year on premium rate fraud. By not tackling this issue, the UK’s mobile operators are leaving themselves exposed to a massive risk and it is consumers and retailers that are paying the ultimate price.

The problem of fraud is set to get worse as mobile purchasing becomes even more prevalent through the rise of in-app payments and near field communications (NFC) payments.

“Premium rate fraudsters in the UK are cheating the mobile industry out of more than the biggest ever Euromillions lottery win - every single year! We need to stop this money going into their back pockets, and use it instead to improve mobile networks or lower mobile bills for customers,” said Teresa Cottam, Research Director, Telesperience.

The £140m per year cost of fraud affects not only the mobile operators, but all the players in the mobile industry, from SMS wholesalers and aggregators, through to content providers and ultimately retailers and their consumers. One of the reasons that operators take such a significant cut from operator billing (around 30%) is to cover fraud and bad debt. Yet the size of the operator cut can make mobile seem like an uncompetitive payment method – reducing the industry’s opportunity to further own the consumer’s wallet.

“Everyone in the mobile industry knows that fraud, bad debt and other types of revenue loss are a major issue – yet hardly anyone talks about it,” commented Cottam. “The scale of the problem is hidden and the cost built into existing business models. The mobile sector simply cannot afford to continue haemorrhaging money in this way; nor can it keep hitting honest customers in the pocket in the form of higher charges, simply because it has failed to address the losses.”

Cottam continued, “What’s worse, a range of new risks mean that the mobile industry will become even more vulnerable to this type of revenue loss in future unless it acts now.”

Operator billing is expected to explode with the growth of App Stores, in-app payments and NFC, combined with the fact that many online retailers are considering mobile commerce as an additional sales channel. Revenue from in-app payments, for example, is predicted to grow by 600% this year. The problem of mobile payment fraud – and the associated cost to the industry – is only going to get bigger unless steps are put in place to prevent it.

Yet recent moves from the UK operators appear to be pushing the responsibility for fraud and bad debt onto the service providers, while restricting legitimate consumers from spending money.

The service providers and aggregators now have to take greater measures to restrict fraud as operators are to increase the ‘claw back’ if service providers allow customers to exceed arbitrary daily spending limits on premium rate services. This moves more risk to aggregators and service providers as well as affecting their business models. It also raises questions over whether services such as NFC-payments can ever truly replace the wallet if daily spend is to be capped by operators.

“Sticking your head in the sand and hoping the problem will go away is not a viable strategy for the operators,” continued Teresa Cottam of Telesperience. “Those who fail to act will see themselves increasingly targeted by fraudsters and will become ever-more uncompetitive due to unsustainable revenue losses and disgruntled customers.”

Providing protection for the millions of daily mobile payments transactions would see even faster adoption of mobile commerce by the wider mobile community, the retailing sector and consumers. Thereby creating more revenue opportunities for the entire mobile industry.

“Fraud is an issue that not only affects the operators, everyone involved in the mobile eco-system, including consumers, is affected by it,” said Chris Newell, CEO of BillingScore. “All of us within the UK mobile industry need to work together to help save the £140m that fraud is costing us each year. Then we need to work to address the billions of pounds that the fraudsters are getting away with globally each year.

“At BillingScore we can help service providers, aggregators and the operators to identify fraudulent activity and reduce the cost of fraud for the industry. We can help to make mobile payment a safer and more secure process,” Newell continued.

BillingScore assesses purchasing data in real-time, across a number of different data points and, using the proprietary algorithms developed through years of experience in the sector, can identify patterns and unusual behaviour that might indicate fraudulent behaviour. Currently used by service providers such as TxtLocal to monitor for Artificially Inflated Traffic (AIT) affecting premium rate traffic and mobile purchasing, the system provides a risk value for each transaction and can even block the transaction from taking place in real-time if it fails to meet the pre-set criteria.

BillingScore is keen to work with operators and the other players in the mobile purchasing sector to reduce the damaging impact of premium rate mobile fraud. Currently around £1 in every £5 spent is fraudulent activity. If the mobile industry can reduce fraud, it will provide a further boost for the mobile commerce sector as a whole. Not only will the operators be able to save money by restricting fraud, they will also be able to reduce the percentage they take as a transaction fee, encouraging more retailers to adopt mobile payments and increasing revenues for everyone involved in the sector.

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