The 3 Fs of Mobile Payments

September 26, 2015

With the extreme popularity of smart phones and the ever increasing desire to function on-the-go, people are turning more and more to mobile payments. What exactly are mobile payments? These include using a mobile device like a smart phone or tablet to pay bills, make a donation, pay someone, or buy something. This can mean paying your electric bill or buying those shoes you’ve been eyeing.

Statistics show more and more people are using their phones this way. According to an online survey, the amount of people who say they use their mobile phone for payments increased from 8% to 40% during 2014 and the numbers are expected to increase rapidly1. The number of people using their phone to pay a merchant in person is also increasing rapidly. This growth represents a huge opportunity for businesses.use-phone-pay-merchant2.jpg

The convenience of mobile payments is appealing for consumers and merchants. Consumers can purchase straight from their phone from any location and merchants can reap the revenue. The rewards from mobile transactions can be huge. As a whole, mobile payments are predicted to generate $717 billion in 20172. Currently, the most popular payment type is bill pay, followed by online and in-app purchases.


How do businesses use mobile payments? Here’s an example. One of the biggest users of mobile payment technology is Uber, a service that connects people needing rides with private drivers. Customers pay for their car ride with a touch of their phone, without ever needing to pull out their wallets and fumble with cash. Sounds easy, right? Then there are options like Apple Pay and Google Wallet that promise ridding people of their burdensome wallets. Each represents a new future where mobile payments dominate.


The purchasing process is complicated, though, when mobile users must pass through numerous security checks to prove their activity is not fraudulent. The more security checks a user has to pass through, the less likely they are to actually go through with the purchase. To be competitive in this ever expanding mobile market, businesses must make it easy to purchase through a mobile device.

The alternative, fraudulent charges, may be worse. Businesses that accept mobile payments get 14% of their transactions from mobile devices. The statistics don’t add up, though, as 21% of fraud cases originate with mobile payments3. This does not bode well for merchants, as fraudulent payments cost more (27% more, to be exact) when made from a mobile device rather than a computer.


It’s not just businesses that are worried about mobile device security. It turns out many customers choose not to pay from their mobile device because of security concerns. A study shows 79% of consumers would be more likely to make mobile payments if they were guaranteed a fraud-free experience1. Other people feel they don’t need to pay through their mobile device or that it is more difficult to pay this way compared to more traditional ways. There is also a difference in use between different age groups. Statistics show older people tend to be more concerned about security issues and are less likely to use mobile payment functions.

So what is there to do? How can businesses offer mobile payment options while avoiding fraudulent charges? How can they encourage more people to use mobile payment options?

The key is to balance the three F s:

  • Functionality- Allowing the user to access a wide array of functions on their mobile device, comparable to what users can do on a computer. Make the business functional in the current market by offering and optimizing the mobile payment option. Remember, customers are more likely to purchase if it is convenient to them.

  • Friction- Reducing the amount of security checks throughout the mobile payment process. Often, users must enter passwords, answer security questions, and SMS verification to prove they are who they say they are. This slows down the payment process. Large amounts of friction during the payment process discourages users and they are less likely to complete the payment process.

  • Fraud- This is an obvious goal given the repercussions of fraud. Businesses want to reduce the amount of costly fraud. In addition, fraudulent charges can discourage users from using a mobile service again. In order to protect everyone, measures to reduce fraud must be taken.

Managing the three F s is a balancing act for businesses. Usually when one “F” is changed, the others are greatly affected. For example, merchants tend to respond to mobile payment fraud by increasing the amount of friction and reducing functionality for the user. This can result in less revenue from this ever-growing dimension of commerce, as it makes purchasing on a mobile device more difficult.


As mobile pay represents a large source of possible revenue, it is important to encourage people to use mobile pay and for businesses to offer highly functional mobile options to their customers. There is a need for new ways to reduce fraud without increasing friction for the mobile user. Users want a seamless experience. They do not want their shopping experience interrupted by prompts for passwords and other forms of verification.

There are more secure and seamless options than current options like passwords, which can be easily stolen by fraudulent users. A better option to address mobile payment fraud may lie in a behavioral approach. The size of a finger, the weight of fingers and the physical interaction of users’ with their devices in general--these behaviors can be collected by sensors in the phone and stored to create a behavioral profile of the user. Fraud can then be detected by peculiar behavior without any action by the account owner.  If the action of the user doesn’t match the profile created, the fraudulent charge is prevented before it occurs, saving the account owner and the business hassle and money.

This behavioral approach provides a high level of security with low amounts of friction for the user, making the mobile experience safe and easy. With the increasing popularity of mobile payments, it’s important that businesses adopt novel solutions to balance functionality, fraud, and friction.





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