5TH ANNUAL MOBILE PAYMENTS & FRAUD Report PRESENTED BY:

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1 5TH ANNUAL MOBILE PAYMENTS & FRAUD 2017 Report PRESENTED BY:

2 EXECUTIVE SUMMARY... 3 MERCHANTS WHO PARTICIPATED IN THE SURVEY... 5 THE STATE OF MOBILE COMMERCE Support for the Mobile Channel Importance of Mobile Channel for Revenue Growth Support for Mobile Platforms and Payment Types Mobile Payments and Volume Growth Revenue from the Mobile Sales Channel Mobile Wallets Vendor Support for Mobile Wallets Future Implications of Mobile Wallets WHERE MERCHANTS FOCUS MOBILE EFFORTS Support for Mobile Features and Capabilities Preferred Forms of Payment for Mobile Transactions Key Geographic Regions for Mobile Efforts Challenges Merchants Face in the Mobile Channel Obstacles to Adoption of Mobile Commerce THE STATE OF MOBILE FRAUD Is the Mobile Channel Higher Risk? Is Mobile Fraud Increasing? Where does Mobile Fraud Occur? International vs. Domestic Transactions Fraud Across Payment Types Events and Factors Influencing Fraud Management: The Impact of Data Breaches The Impact of EMV Detecting Mobile Devices and Preventing Mobile Fraud Importance of Detecting Mobile Devices Ability to Detect Mobile Devices in Transactions Does the Mobile Channel Require Additional Tools? Tools Deployed to Combat Mobile Fraud Top Tools and Services for Fighting Mobile Fraud CONCLUSION ABOUT THE SPONSORS Kount. All rights reserved. Do not copy, reproduce, or duplicate without written permission. Please requests to: don.bush@kount.com. 2

3 Executive Summary The Mobile Payments and Fraud Survey: 2017 Report is the fifth edition of this annual study which seeks to understand and measure the state of mobile payments and mobile channel fraud. Now with five years of data and thousands of merchants surveyed, this study is able to identify persistent patterns and changing trends around many aspects of mobile channel payments and risk. From the inaugural Mobile Payments and Fraud Survey published in 2013 to this year s study, merchants who actively support the mobile channel increased from 54 to nearly 80 percent of those surveyed. Merchants who stated that the mobile channel was not important to their company s revenue fell from nearly one-in-five merchants to just 7 percent. Over this same time frame, the portion of merchants who earned less than 5 percent of their total revenue in the mobile channel fell from one-half to one-fifth of all merchants. To say the mobile channel and the emphasis merchants place on mobile has grown over the past five years would be an understatement. While the industry has enjoyed healthy revenue growth in the mobile channel, fraud has continued to migrate to the mobile channel as well. The share of merchants who could definitively state that fraud in the mobile channel is increasing reached 40 percent, up from just 23 percent last year. Although 42 percent of merchants aren t sure whether mobile fraud grew or shrank relative to their mobile volume, less than 8 percent said that fraud in the mobile channel declined as a percentage of total volume. The majority of merchants, 60 percent, believe browser-based mobile payments are those at greatest risk for fraud. Causing some concern is the fact that despite more merchants reporting growing mobile fraud, fewer merchants are concerned with managing 3

4 Executive Summary fraud risk in the mobile channel any differently than they do for traditional ecommerce. Only about one-in-four merchants say the mobile channel is higher risk than ecommerce today, whereas 44 percent of merchants felt this way two years ago. And compared to two years ago, the number of merchants who indicated the mobile channel requires additional tools to manage risk has stayed flat. There are several areas where merchants are making major efforts and improvements to better support mobile payments. In the first Mobile Payments and Fraud Survey, over 55 percent of merchants stated they were not able to detect whether a transaction was coming from a mobile device. Today, less than 15 percent of merchants are not able to detect whether a transaction is originating on a mobile device. For the third consecutive year, merchants have been more likely to support the two major mobile operating systems as well as cross-platform solutions like mobile optimized websites. Merchants have also grown by leaps and bounds in terms of the various features they support to facilitate mobile payments. The most common feature merchants support today are dedicated mobile websites, which 47 percent of merchants offer today, up from 38 percent five years ago. Mobile apps that can be used for online shopping are supported by 44 percent of merchants today, up from just 21 percent at the time of the inaugural survey. Although mobile wallets used at the physical point-of-sale haven t caught up to support for mobile ecommerce, nearly 30 percent of merchants accept POS mobile payments today, nearly twice as many merchants as supported this five years ago. The Mobile Payments and Fraud Survey: 2017 Report takes a close look at the state of mobile payments and state of mobile fraud today, and includes data about the fraud prevention tools merchants use in the mobile channel, the payment types they support, and where merchants are focusing their mobile efforts and initiatives. These along with other findings, comparisons and analyses are discussed in the fifth annual Mobile Payments and Fraud Survey, presented by Kount, Braintree, CardNotPresent. com and The Fraud Practice. 4

5 Merchants Who Participated in the Survey Mobile Payments & Fraud: 2017 Report

6 Merchants Who Participated in the Survey Over 800 respondents participated in the 2017 Mobile Payments and Fraud Survey. In previous years, the Mobile Payments and Fraud Survey included all types of organizations. This year, however, the focus was exclusively on merchants. Respondents represented many different types of merchants operating in different regions, channels and vertical markets. More than half of those surveyed were multi-channel merchants, compared to 46 percent who were pure play ecommerce/mobile merchants. This included nearly one-third of merchants that earned gross annual revenues exceeding $500 million per year. At the other end of the continuum, 16 percent of merchants surveyed had annual revenues of less than $5 million, while 17 percent had annual revenues between $5 and $25 million, and nearly 20 percent earned between $100 and $500 million per year. Merchants by Annual Revenue 9.7% 16.2% Less than $5 million $5 million- $10 million 7.6% $10 million- $25 million $25 million- $100 million $100 million- $250 million $250 million- $500 million 14.1% Greater than $500 million 10.9% 32.9% Merchants Surveyed ecommerce Only vs Multi Channel 8.5% ecommerce pureplay Multi/omnichannel 46% 54% 6

7 Merchants Who Participated in the Survey Over three-quarters of merchants surveyed are headquartered in the U.S., Canada or Mexico. Nevertheless, a majority of these merchants, 56 percent, were doing business in other regions outside of North America. Over half of merchants surveyed sold goods or services to Western Europe while at least 40 percent did business in Eastern Europe, Asia, Australasia and South America as well. Where Is Your Organization Headquartered? 2.4% 0.9% 0.9% 0.3% 2.6% 4.4% North America Western Europe 11.5% Australasia Asia Eastern Europe Africa Middle East 77.1% South America Regions Where Merchants Are Doing Business Today North America 87% Western Europe 51% Eastern Europe 43% Asia 42% Australasia 41% South America 40% Middle East 29% Africa 29% 7

8 Merchants Who Participated in the Survey The 2017 Mobile Payments and Fraud Survey included a wide range of merchants, not just with different levels of volume or revenue, but also across a variety of retail segments and vertical markets. As in each previous year of the Mobile Payments and Fraud Survey, the Apparel/ Accessories segment is the most represented, this year at 28 percent of merchants surveyed. There were four additional vertical markets represented by at least 16 percent of merchant respondents Digital Goods, Computers/Electronics, Housewares/Home Furnishings and Health/ Beauty goods Over 42 percent of merchants participating in this year s survey sold goods or services in more than one of segment or vertical market, while 25 percent operated in three or more segments. Types of Goods/Services Sold Apparel/Accessories 30.8% 46.3% 45.4% 23.0% 27.9% Digital Goods 8.3% 12.0% 12.4% 22.3% 18.5% Computer/Electronics 13.5% 20.6% 20.7% 22.3% 17.5% Housewares/Home Furnishings 16.7% 24.5% 23.4% 15.5% 17.5% Health/Beauty 14.1% 19.7% 23.1% 16.2% 16.8% Toys/Hobbies 14.1% 15.2% 17.5% 12.8% 13.8% Travel 3.2% 3.8% 4.9% 8.1% 13.5% Sporting Goods 12.2% 14.0% 14.6% 14.2% 11.8% Food/Drug 16.0% 14.6% 13.5% 11.5% 10.8% Jewelry 13.5% 19.7% 17.3% 15.5% 10.8% Professional Services 0.0% 0.0% 0.0% 8.8% 10.8% Books/Music/Video 14.7% 15.2% 15.1% 10.1% 10.4% Hardware/Home Improvement 14.1% 16.4% 16.6% 3.4% 9.4% Ticketing 0.0% 0.0% 0.0% 0.0% 9.4% Office Supplies 10.9% 9.2% 9.9% 6.8% 8.1% Gaming 6.4% 7.2% 9.4% 8.1% 7.1% Flowers/Gifts 8.3% 8.6% 7.6% 6.8% 6.4% Financial Services 2.6% 3.8% 1.8% 7.4% 5.7% Other Services 3.2% 9.3% 6.3% 4.7% 5.4% Automobiles/Auto Parts 0.0% 0.0% 6.1% 3.4% 5.1% Telecom 1.9% 5.8% 3.4% 4.7% 4.4% Other 0.0% 0.0% 0.0% 4.7% 3.4% Alcohol/Tobacco 0.0% 0.0% 3.1% 1.4% 3.0% Insurance 1.9% 1.8% 1.1% 2.7% 3.0% Money Movement 0.0% 0.6% 0.2% 3.4% 1.7% Dating/Social Sites 0.0% 1.2% 1.3% 4.7% 1.3% Direct Response 1.9% 1.3% 0.7% 2.7% 0.0% Mass Merchant 2.6% 5.0% 7.2% 3.4% 0.0% Specialty/Non-Apparel 14.1% 15.8% 13.0% 8.1% 0.0% 8

9 Merchants Who Participated in the Survey Roughly one-third of merchants surveyed overall had annual revenues greater than $500 million, one-third had annual revenue less than $25 million, and the remaining one-third fell somewhere in between. While this distribution is about the same for merchants selling Apparel/Accessories, it is not the case across all vertical markets. Travel Services, Insurance, Telecom and Office Supplies, for example, are all segments that were more top heavy, with at least 45 percent of merchants surveyed in each of these industries in the greater than $500 million annual revenue group. Professional Services, Other Services and Automobiles/Auto Parts were the merchant segments where merchants were most likely to be in the less than $5 million annual revenue group. Types of Goods/Services Sold (by Revenue) < $5 Million $5-10 Million $10-25 Million $ Million $ Million $ Million > $500 Million Apparel/Accessories 18.1% 10.8% 3.6% 19.3% 7.2% 7.2% 33.7% Digital Goods 9.1% 7.3% 5.5% 16.4% 9.1% 12.7% 40.0% Computer/Electronics 5.8% 7.7% 5.8% 15.4% 11.5% 11.5% 42.3% Housewares/Home Furnishings 13.5% 13.5% 3.8% 9.6% 11.5% 11.5% 36.5% Health/Beauty 16.0% 14.0% 4.0% 8.0% 10.0% 14.0% 34.0% Toys/Hobbies 17.1% 12.2% 2.4% 9.8% 14.6% 12.2% 31.7% Travel Services 10.0% 5.0% 5.0% 15.0% 2.5% 5.0% 57.5% Non-Apparel Sporting Goods 14.3% 14.3% 2.9% 17.1% 5.7% 8.6% 37.1% Food/Drug 12.5% 9.4% 3.1% 12.5% 3.1% 15.6% 43.8% Jewelry 18.8% 6.3% 3.1% 15.6% 9.4% 12.5% 34.4% Professional Services 37.5% 0.0% 12.5% 9.4% 6.3% 6.3% 28.1% Books/Music/Video 16.1% 9.7% 3.2% 19.4% 6.5% 9.7% 35.5% Hardware/Home Improvement 21.4% 0.0% 10.7% 7.1% 7.1% 17.9% 35.7% Ticketing 10.7% 3.6% 10.7% 21.4% 7.1% 7.1% 39.3% Office Supplies 12.5% 12.5% 4.2% 12.5% 8.3% 4.2% 45.8% Games 14.3% 4.8% 4.8% 9.5% 4.8% 14.3% 47.6% Flowers/Gifts 21.1% 15.8% 0.0% 15.8% 0.0% 15.8% 31.6% Gaming 11.1% 16.7% 0.0% 22.2% 0.0% 16.7% 33.3% Financial Services 5.9% 17.6% 5.9% 11.8% 5.9% 5.9% 47.1% Other Services 31.3% 6.3% 12.5% 6.3% 25.0% 6.3% 12.5% Automobiles/Auto Parts 26.7% 13.3% 0.0% 13.3% 6.7% 6.7% 33.3% Telecom 7.7% 7.7% 0.0% 23.1% 7.7% 7.7% 46.2% Other 10.0% 10.0% 10.0% 10.0% 30.0% 0.0% 30.0% Alcohol/Tobacco 11.1% 0.0% 0.0% 44.4% 0.0% 11.1% 33.3% Insurance 11.1% 0.0% 0.0% 11.1% 0.0% 0.0% 77.8% Money Movement/Transfer 0.0% 20.0% 20.0% 40.0% 0.0% 0.0% 20.0% Dating/Social 0.0% 0.0% 0.0% 75.0% 0.0% 0.0% 25.0% 9

10 Merchants Who Participated in the Survey With each year of the Mobile Payments and Fraud Survey, merchants who have little experience selling online are becoming fewer and further between. This year, over 80 percent of merchants surveyed had five or more years experience selling in the online channel, up from 69 percent in 2016 and 60 percent in Merchants that stated they had less than one year of online sales experience fell from 14 percent to 9 percent in 2016, decreasing further to 5 percent this year. This deep ecommerce experience of five or more years extends across all vertical markets represented in the survey, with at least 60 percent of merchants in each industry having had at least five years experience. At least three-quarters of merchants in 23 of the 27 merchant segments represented had this level of online sales experience as well. Years Selling Online 7.6% 6.3% 5.4% 5 or more years 3-4 years 1-2 years Less than 1 year 80.6% 10

11 Merchants Who Participated in the Survey Years Selling Online < 1 year 1-2 years 3-4 years 5+ years Apparel/Accessories 9.6% 7.2% 4.8% 78.3% Digital Goods 1.8% 7.3% 5.5% 85.5% Computer/Electronics 5.8% 9.6% 13.5% 71.2% Housewares/Home Furnishings 7.7% 7.7% 7.7% 76.9% Health/Beauty 6.0% 6.0% 6.0% 82.0% Toys/Hobbies 4.9% 9.8% 9.8% 75.6% Travel Services 2.5% 5.0% 10.0% 82.5% Non-Apparel Sporting Goods 5.7% 5.7% 8.6% 80.0% Food/Drug 0.0% 12.5% 6.3% 81.3% Jewelry 3.1% 9.4% 3.1% 84.4% Professional Services 15.6% 3.1% 6.3% 75.0% Books/Music/Video 6.5% 3.2% 3.2% 87.1% Hardware/Home Improvement 7.1% 10.7% 3.6% 78.6% Ticketing 3.6% 3.6% 7.1% 85.7% Office Supplies 4.2% 8.3% 8.3% 79.2% Games 4.8% 9.5% 4.8% 81.0% Flowers/Gifts 10.5% 5.3% 10.5% 73.7% Gaming 0.0% 16.7% 11.1% 72.2% Financial Services 5.9% 5.9% 11.8% 76.5% Other Services 0.0% 0.0% 6.3% 93.8% Automobiles/Auto Parts 13.3% 0.0% 6.7% 80.0% Telecom 7.7% 0.0% 0.0% 92.3% Other 10.0% 10.0% 20.0% 60.0% Alcohol/Tobacco 0.0% 11.1% 11.1% 77.8% Insurance 0.0% 0.0% 11.1% 88.9% Money Movement/Transfer 20.0% 0.0% 0.0% 80.0% Dating/Social 0.0% 25.0% 0.0% 75.0% 11

12 Merchants Who Participated in the Survey Over 93 percent of respondents said they managed or influenced the online channel, while 63 percent managed the mobile channel. The share of merchant respondents that managed or influenced the online channel stayed relatively flat from last year, but there was a notable jump in the share of respondents who managed or influenced the mobile channel, increasing from 47 to 63 percent. The 2017 Mobile Payments and Fraud Survey included several new questions, one of which requested greater detail about the level of influence and responsibility survey respondents have in managing the payment or fraud strategy for their merchant organizations. Over 30 percent of respondents reported they are ultimately responsible for their organization s risk management strategy, while an additional 37 percent said they influence it. Another 14 percent of merchant respondents managed either their company s payment services or fraud department, while less than 12 percent of the merchants reached in the 2017 survey were not involved with risk management. Sales Channels Managed/Influenced Brick & Mortar 34.8% Call Center 44.5% Mail Order 15.4% Mobile 63.0% Online 93.4% Risk/Payment Role Within Company I manage my company s payment services I manage the fraud department 30.5% 8.0% 5.8% Influence decision for risk/fraud strategy IT strategy of risk/fraud solution Not involved Purchasing decision of risk/fraud solution Ultimately responsible 1.3% 11.5% 37.2% 5.8% 12

13 The State of Mobile Commerce Mobile Payments & Fraud: 2017 Report

14 Mobile Commerce: Growing In Significance and Support The world of payments and fraud is dynamic and fast-moving, and this is especially true in the mobile channel. One of the primary goals of the Mobile Payments and Fraud Survey is to assess various merchants current level of support and sales for the mobile channel. This portion of the survey explores questions such as: How many merchants support the mobile sales channel today, and how important is it to their revenue? What platforms and forms of payment do they support or plan to support? How much revenue are merchants earning in the mobile channel, and how much is it growing? What is the level of support for mobile wallets? What are the future expectations and implications of mobile wallets? 14

15 Support for the Mobile Channel While 78 percent of merchants who actively support the mobile channel is down slightly from last year, it is nonetheless at the second highest level across all five years of the Mobile Payments and Fraud Survey. Last year, numbers may have been skewed more toward mobile-heavy merchants, as just 1 percent had no plans for mobile at the time of the 2016 survey, compared to 5 percent of merchants today. This 5 percent figure is the second lowest share in the five years of the survey, compared to 12 and 11 percent in 2013 through The share of merchants who do not support the mobile channel currently but have plans to support it within 24 months remained the same as last year at 17 percent. Support for the Mobile Channel We are actively supporting it We plan to support it in the next 1-2 years 54% 64% 69% 82% 78% We have no plans for mobile channel sales currently 34% 24% 20% 12% 12% 11% 17% 17% 1% 5%

16 Support for the Mobile Channel A trend noted in past surveys and observed once again is that higher revenue merchants tend to be more likely to actively support the mobile channel. Whereas 85 percent of merchants with annual revenues greater than $250 million actively supported the mobile channel in this year s survey, just one-third of merchants with annual revenues of less than $5 million say the same. Just three percent of merchants in the largest revenue group (greater than $500M) had no plans to support the mobile channel, compared to 11 percent of merchants in the smallest revenue group (less than $5M). Support for the Mobile Channel (by Revenue) We are actively supporting it We plan to support it in the next 1-2 years We have no plans for mobile channel sales currently 66% 71% 78% 82% 73% 92% 83% 23% 11% < $5 M 29% 20% 17% 13% 14% 4% 4% 5% 7% 4% 3% $5-10 M $10-25 M $ M $ M $ M >$500 M 16

17 Support for the Mobile Channel Support for the mobile channel extended across all vertical markets or merchant segments, as only one merchant goods/services category had less than half of the merchants actively supporting the mobile channel today (Other Services, at 47 percent). In 21 out of 27 merchant segments, at least three-quarters of merchants actively supported the mobile channel, while there were 25 different vertical markets where at least two-thirds of merchants were active in the mobile channel. The Insurance, Money Movement/Transfer and Telecom categories were the most likely to indicate they had no plans to support the mobile channel. Support for Mobile Channel Actively Support Plan to Support in 1-2 Years No Plans to Support Apparel/Accessories 83% 14% 4% Digital Goods 77% 19% 4% Housewares/Home Furnishings 76% 20% 4% Computer/Electronics 76% 22% 2% Health/Beauty 86% 12% 2% Toys/Hobbies 76% 22% 2% Travel Services 89% 11% 0% Non-Apparel Sporting Goods 82% 18% 0% Food/Drug 88% 13% 0% Books/Music/Video 77% 23% 0% Jewelry 87% 10% 3% Professional Services 67% 23% 10% Ticketing 86% 14% 0% Hardware/Home Improvement 81% 19% 0% Office Supplies 74% 26% 0% Games 81% 19% 0% Flowers/Gifts 79% 21% 0% Gaming 88% 12% 0% Financial Services 73% 13% 13% Other Services 47% 40% 13% Automobiles/Auto Parts 71% 29% 0% Telecom 77% 8% 15% Insurance 78% 0% 22% Other 89% 11% 0% Alcohol/Tobacco 88% 13% 0% Money Movement/Transfer 60% 20% 20% Dating/Social 100% 0% 0% 17

18 Importance of Mobile Channel for Revenue Growth In each of the five years of the Mobile Payments and Fraud Survey, merchants have been increasingly more likely to state the mobile channel is Very Important to their overall revenue. This has grown from 35 percent of merchants who indicated this at the time of the inaugural Mobile Payments and Fraud Survey to 62 percent of merchants today. Merchants who stated that the mobile channel was Not Important to their overall revenue has fallen from 19 percent to 7 percent of merchants over this same five-year time frame, decreasing more each year. Importance of Mobile Channel for Revenue Very Important 34.6% 49.0% 49.5% 59.5% 62.0% Somewhat Important Not Important 46.2% 34.5% 39.6% 32.4% 31.0% 19.2% 16.5% 10.8% 8.1% 7.1%

19 Importance of Mobile Channel for Revenue Growth A recurring trend in this and past Mobile Payments and Fraud Surveys is that higher revenue merchants tended to place more significance on the mobile channel while supporting more mobile platforms, payments and features. This still held true, but merchants in the lowest revenue group gained ground and were more likely to say the mobile channel was Very Important. Over 68 percent of merchants who earned revenues greater than $500 million annually said mobile was Very Important, compared to 56 percent of merchants with annual revenues of less than $5 million. While there is still a notable difference between the two groups, only 31 percent of merchants with annual revenue less than $5 million said the mobile channel was Very Important two years ago. Importance of Mobile Strategy (by Revenue) Very Important Somewhat Important 56.3% 48.0% 62.8% 53.1% 56.0% 68.4% Not Important 76.9% 35.4% 40.0% 23.3% 40.6% 40.0% 27.6% 8.3% < $5 M 19.2% 3.8% 12.0% 14.0% 6.3% 4.0% 4.1% $5-10 M $10-25 M $ M $ M $ M >$500 M 19

20 Importance of Mobile Channel for Revenue Growth At least half of merchants in every vertical market except Other Services stated that the mobile channel is Very Important for their total revenue. This includes 15 merchant segments where at least two-thirds said mobile was Very Important and six merchant segments, including Travel Services and Flowers/Gifts, where at least three-quarters of merchants said mobile was very important. Hardware/Home Improvement and Money Movement/Transfer were the merchant segments in which merchants were most likely to say mobile is Not Important. Importance of Mobile Not Important Somewhat Important Very Important Apparel/Accessories 4.8% 26.5% 68.7% Digital Goods 7.3% 27.3% 65.5% Computer/Electronics 5.8% 40.4% 53.8% Housewares/Home Furnishings 3.8% 23.1% 73.1% Health/Beauty 4.0% 22.0% 74.0% Toys/Hobbies 4.9% 34.1% 61.0% Travel Services 7.5% 12.5% 80.0% Non-Apparel Sporting Goods 8.6% 22.9% 68.6% Food/Drug 0.0% 28.1% 71.9% Jewelry 3.1% 21.9% 75.0% Professional Services 6.3% 37.5% 56.3% Books/Music/Video 9.7% 25.8% 64.5% Hardware/Home Improvement 21.4% 17.9% 60.7% Ticketing 10.7% 21.4% 67.9% Office Supplies 8.3% 25.0% 66.7% Games 4.8% 33.3% 61.9% Flowers/Gifts 0.0% 15.8% 84.2% Gaming 0.0% 33.3% 66.7% Financial Services 11.8% 29.4% 58.8% Other Services 12.5% 56.3% 31.3% Automobiles/Auto Parts 0.0% 46.7% 53.3% Telecom 15.4% 0.0% 84.6% Other 10.0% 40.0% 50.0% Alcohol/Tobacco 0.0% 11.1% 88.9% Insurance 11.1% 22.2% 66.7% Money Movement/Transfer 20.0% 20.0% 60.0% Dating/Social 0.0% 25.0% 75.0% 20

21 Support for Mobile Platforms and Payment Types In each year of the Mobile Payments and Fraud Survey, the Apple ios and Google Android mobile operating systems have been the platforms that have garnered the most support amongst merchants, and each year the portion of merchants who support these platforms has increased. In this year s survey, each platform was supported by more than 70 percent of merchants compared to about 56 percent two years ago. The share of merchants supporting the Windows mobile platform stayed flat at around 35 percent while support for Blackberry has fallen for consecutive years. Merchants that supported mobile-optimized checkout increased from 30 to 40 percent since last year, although the share that supported HTML5 fell by five percent. Support for Mobile Operating Systems and Platforms 61% 57% 72% 56% 65% 71% % 34% 35% 33% 28% 30% 40% 16% 15% 12% 15% 16% 0% 1% 1% 6% 6% 8% ios Android Windows Blackberry HTML 5 Mobile Optimized Other None 21

22 Support for Mobile Platforms and Payment Types There are notable correlations in this year s study regarding a merchant s revenue and the mobile operating systems or platforms that they supported. For example, smaller revenue merchants were less likely to support mobile overall relative to the highest revenue merchants and were also less likely to support each mobile OS or platform. Merchants with annual revenues of less than $5 million were slightly to moderately less likely to support cross-platform solutions like HTML5 (22 percent) and mobile-optimized checkout (19 percent) compared to merchants with over $500 million in annual revenue (25 and 31 percent, respectively). However, these merchants with annual revenues less than $5 million were much less likely to support specific mobile operating systems like ios (12 percent), Android (13 percent) and Windows (10 percent), compared to the highest revenue merchants (41, 42 and 36 percent, respectively). Support for Mobile Operating Systems and Platforms < $5 Million $5-10 Million $10-25 Million $ Million $ Million $ Million > $500 Million ios 11.9% 7.0% 7.5% 13.4% 10.4% 9.0% 40.8% Android 12.6% 6.0% 7.5% 12.6% 10.1% 9.5% 41.7% Windows 9.1% 8.1% 9.1% 11.1% 16.2% 10.1% 36.4% BlackBerry 15.2% 9.1% 9.1% 21.2% 15.2% 9.1% 21.2% HTML % 3.8% 12.7% 15.2% 11.4% 10.1% 25.3% Mobile Optimized Checkout 18.9% 9.9% 9.0% 13.5% 9.0% 9.0% 30.6% Other 0.0% 0.0% 50.0% 0.0% 0.0% 0.0% 50.0% None 21.7% 4.3% 8.7% 17.4% 8.7% 8.7% 30.4% 22

23 Support for Mobile Platforms and Payment Types Consumers want to use and merchants can support a variety of different payment types across the various mobile operating systems and platforms. Whether it s within a mobile app or mobile-optimized site, merchants can accept multiple payment methods. Nearly all of those surveyed 97 percent accepted credit cards via mobile devices. PayPal, accepted by 56 percent of merchants for mobile commerce, was the third most supported payment method after credit and debit cards. More than one-in-five merchants accepted mobile wallets, but few accepted ACH (8 percent) or Bitcoin (2 percent). On average, merchants accepted 3.4 different mobile payment methods. This included nearly 70 percent of merchants that supported 3 or more mobile payment methods, 47 percent that supported 4 or more, and 20 percent of merchants that accepted at least 5 mobile payment methods. Payment Methods Accepted from Mobile Devices ACH 8% Bill2phone 1% Bitcoin 2% Credit Card 97% Debit Card 79% Gift Card 36% Mobile Wallet 22% PayPal 56% Prepaid Card 33% Other 4% None 1% 23

24 Mobile Payments and Volume Growth Another goal of the annual Mobile Payments and Fraud Survey is to measure the growth of the mobile payments channel and its share of overall revenue. The next series of questions are focused on the mobile channel growth merchants have experienced in the last year, along with their expectations of mobile volume growth to come. A new addition to the 2017 Mobile Payments and Fraud Survey was a question asking merchants how much their mobile transaction volume has grown in the past year. Nearly nine-in-ten merchants reported that their mobile channel sales increased in the past twelve months, while close to half of merchants (48 percent) stated their mobile sales volume grew by 11 percent or more. How Much Did Mobile Volume Grow Last Year? 1% 4% 4% 8% 11% Mobile volume decreased Mobile volume stayed the same Less than 5% 6%- 10% 9% 19% 11%- 20% 21%- 30% 31%- 40% 41%- 50% 51% or more 23% 21% 24

25 Revenue from the Mobile Sales Channel For five consecutive years, the Mobile Payments and Fraud Survey has asked merchants to estimate the portion of their total revenue that comes through the mobile channel. In each year since the inaugural survey, the share of merchants earning less than 5 percent or between 5 and 10 percent of their total revenue in the mobile channel has declined. This year, nearly 48 percent of merchants stated that they were earning at least 20 percent of their revenue via the mobile channel. The data collected over this five-year period illustrates the significant growth of mobile commerce. Five years ago, 78 percent of merchants earned less than 10 percent of their total revenue in the mobile channel, while half of merchants earned less than 5 percent of their total revenue in the mobile channel. This year, just 36 percent of merchants reported that they earned less than 10 percent of their total revenue in the mobile channel, while 32 percent of merchants earned 40 percent or more of their revenue from the mobile channel. During the first three years of the Mobile Payments and Fraud Survey just 2 to 3 percent of merchants earned more than half of their total revenue in the mobile channel. This year, over 10 percent of merchants earned the majority of their revenue in the mobile channel. Percent of Total Revenue from Mobile Sales Channel Today 50% % 35% % 21% 20% 21% 21% 22% 20% 16% 16% 17% 16% 13% 14% 13% 13% 11% 11% 11% 10% 10% 10% 9% 5% 5% 2% 3% 1% 3% 3% 2% 3% 3% Less than 5% 5%- 10% 10%- 20% 20%- 30% 30%- 40% 40%- 50% More than 50% 25

26 Revenue from the Mobile Sales Channel Not only has the mobile channel grown significantly as a source of merchant revenue over the past five years, but merchants also expected this trend to continue. Although only one-in-ten merchants earned more than half of their revenue in the mobile channel, more than one-in-four merchants believe they will be generating at least half their revenue in the mobile channel within two years. More than half of merchants, 56 percent, believed they would be earning at least 30 percent of their total revenue in the mobile channel within two years. Although 20 percent of merchants generated less than 5 percent of their total revenue in the mobile channel this year, only 7 percent of merchants thought this would still be the case in two years. Percent of Total Revenue from Mobile Sales Channel Now and in the Future Today In 2 Years 26% 20% 16% 12% 17% 13% 16% 13% 11% 16% 10% 14% 10% 7% Less than 5% 5%- 10% 10%- 20% 20%- 30% 30%- 40% 40%- 50% More than 50% 26

27 Revenue from the Mobile Sales Channel There was meaningful variation in the share of revenue the mobile channel represented across different merchant segments or vertical markets. There were 12 merchant segments in which at least one-in-five of merchants earned less than 5 percent of total revenue in the mobile channel. These included Computers/Electronics, Hardware/Home Improvement, Books/Music/Video and Professional Services. There were an additional 12 merchant segments in which at least one-infive merchants generated 50 percent or more of their revenue in the mobile channel, including the Toys/Hobbies, Sporting Goods and Jewelry merchant segments. % Revenue in Mobile Channel Today < 5% 5-10% 10-20% 20-30% 30-40% 40-50% > 50% Apparel/Accessories 15.7% 12.0% 25.3% 16.9% 13.3% 7.2% 9.6% Digital Goods 18.2% 9.1% 16.4% 18.2% 14.5% 9.1% 14.5% Computer/Electronics 25.0% 17.3% 19.2% 13.5% 7.7% 5.8% 11.5% Housewares/Home Furnishings 17.3% 13.5% 19.2% 11.5% 13.5% 7.7% 17.3% Health/Beauty 16.0% 10.0% 20.0% 10.0% 14.0% 12.0% 18.0% Toys/Hobbies 17.1% 9.8% 22.0% 12.2% 12.2% 4.9% 22.0% Travel Services 10.0% 17.5% 20.0% 20.0% 15.0% 2.5% 15.0% Non-Apparel Sporting Goods 14.3% 11.4% 22.9% 8.6% 11.4% 8.6% 22.9% Food/Drug 9.4% 3.1% 21.9% 21.9% 12.5% 6.3% 25.0% Jewelry 15.6% 6.3% 25.0% 18.8% 9.4% 3.1% 21.9% Professional Services 34.4% 15.6% 12.5% 6.3% 6.3% 6.3% 18.8% Books/Music/Video 22.6% 9.7% 22.6% 6.5% 9.7% 3.2% 25.8% Hardware/Home Improvement 25.0% 14.3% 10.7% 7.1% 10.7% 7.1% 25.0% Ticketing 21.4% 14.3% 14.3% 7.1% 14.3% 17.9% 10.7% Office Supplies 8.3% 16.7% 16.7% 20.8% 12.5% 8.3% 16.7% Games 19.0% 9.5% 23.8% 4.8% 9.5% 14.3% 19.0% Flowers/Gifts 15.8% 5.3% 10.5% 5.3% 15.8% 10.5% 36.8% Gaming 22.2% 0.0% 27.8% 16.7% 0.0% 0.0% 33.3% Financial Services 35.3% 11.8% 5.9% 17.6% 5.9% 5.9% 17.6% Other Services 31.3% 25.0% 6.3% 25.0% 12.5% 0.0% 0.0% Automobiles/Auto Parts 33.3% 6.7% 6.7% 13.3% 20.0% 6.7% 13.3% Telecom 15.4% 7.7% 7.7% 30.8% 7.7% 7.7% 23.1% Other 20.0% 30.0% 10.0% 20.0% 0.0% 10.0% 10.0% Alcohol/Tobacco 11.1% 0.0% 22.2% 11.1% 22.2% 11.1% 22.2% Insurance 33.3% 22.2% 0.0% 11.1% 11.1% 0.0% 22.2% Money Movement/Transfer 40.0% 0.0% 0.0% 20.0% 20.0% 0.0% 20.0% Dating/Social 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 27

28 Revenue from the Mobile Sales Channel Although 26 percent of merchants overall believe the mobile channel will represent more than half of their total revenue within two years, there were 16 merchant segments in which at least one-third of organizations believed this. Ticketing, Food/Drug, Health/Beauty, Flowers/Gifts and Gaming were merchant segments in which many merchants were expecting the mobile channel to grow to comprise the majority of their revenue. Just 7 percent of merchants overall thought the mobile channel would be less than 5 percent of their total revenue in two years, but the Automobiles/Auto Parts, Financial Services and Computer/Electronics merchant segments were the most likely to indicate this. % Revenue in Mobile Channel in 2 Years < 5% 5-10% 10-20% 20-30% 30-40% 40-50% > 50% Apparel/Accessories 6.0% 12.0% 13.3% 15.7% 14.5% 14.5% 24.1% Digital Goods 1.8% 7.3% 9.1% 16.4% 16.4% 20.0% 29.1% Computer/Electronics 11.5% 11.5% 17.3% 15.4% 15.4% 9.6% 19.2% Housewares/Home Furnishings 5.8% 15.4% 9.6% 13.5% 15.4% 9.6% 30.8% Health/Beauty 4.0% 14.0% 12.0% 12.0% 10.0% 10.0% 38.0% Toys/Hobbies 4.9% 9.8% 12.2% 22.0% 12.2% 7.3% 31.7% Travel Services 5.0% 10.0% 10.0% 15.0% 12.5% 15.0% 32.5% Non-Apparel Sporting Goods 8.6% 8.6% 11.4% 14.3% 5.7% 20.0% 31.4% Food/Drug 6.3% 0.0% 9.4% 15.6% 15.6% 12.5% 40.6% Jewelry 3.1% 15.6% 6.3% 9.4% 12.5% 18.8% 34.4% Professional Services 6.3% 31.3% 9.4% 6.3% 6.3% 9.4% 31.3% Books/Music/Video 9.7% 9.7% 9.7% 16.1% 6.5% 12.9% 35.5% Hardware/Home Improvement 7.1% 10.7% 17.9% 7.1% 10.7% 10.7% 35.7% Ticketing 3.6% 17.9% 3.6% 3.6% 17.9% 7.1% 46.4% Office Supplies 4.2% 8.3% 12.5% 12.5% 12.5% 16.7% 33.3% Games 4.8% 14.3% 9.5% 14.3% 4.8% 14.3% 38.1% Flowers/Gifts 5.3% 10.5% 15.8% 10.5% 5.3% 5.3% 47.4% Gaming 0.0% 11.1% 5.6% 16.7% 11.1% 16.7% 38.9% Financial Services 11.8% 5.9% 29.4% 5.9% 17.6% 5.9% 23.5% Other Services 6.3% 18.8% 37.5% 12.5% 6.3% 6.3% 12.5% Automobiles/Auto Parts 13.3% 20.0% 0.0% 6.7% 6.7% 20.0% 33.3% Telecom 7.7% 0.0% 7.7% 7.7% 7.7% 30.8% 38.5% Other 10.0% 20.0% 20.0% 10.0% 0.0% 10.0% 30.0% Alcohol/Tobacco 11.1% 0.0% 0.0% 11.1% 11.1% 11.1% 55.6% Insurance 11.1% 22.2% 11.1% 0.0% 11.1% 0.0% 44.4% Money Movement/Transfer 20.0% 0.0% 20.0% 0.0% 0.0% 0.0% 60.0% Dating/Social 0.0% 0.0% 0.0% 0.0% 25.0% 25.0% 50.0% 28

29 Mobile Wallets Beyond assessing the mobile operating systems and platforms that merchants support, the previous three Mobile Payments and Fraud Surveys included additional questions to measure the acceptance and support of mobile wallets. This year, there was a notable drop in the share of merchants that accepted any mobile wallets, from about one-third of merchants in 2016 to 22 percent of merchants today. This was slightly lower but comparable to the levels first observed in A common theme was that higher revenue merchants were more likely to support mobile commerce and mobile features than smaller revenue merchants. Just 11 percent of merchants with annual revenues of less than $5 million accepted mobile wallets, compared to 40 percent of merchants with annual revenues of $250 million or more. Just 19 percent of merchants with annual revenues of less than $25 million accepted mobile wallets, compared to 32 percent of merchants with annual revenue greater than $25 million and 37 percent of merchants with more than $100 million in annual revenue. Merchants That Accept Mobile Wallets % % % Merchants That Accept Mobile Wallets by Revenue 48% < $5 Million $5- $10 Million 31% 28% $10- $25 Million $25- $100 Million $100- $250 Million $250- $500 Million > $500 Million 17% 11% 4% 11% 29

30 Mobile Wallets The mobile payments space is constantly evolving, and the questions in the survey have changed over the years to keep pace. This has led to new additions like questions about Samsung Pay in last year s survey, and additional questions in this year s survey about mobile wallets such as ChasePay, AMEX Express Checkout, and others. Even with new competitors, the three most supported mobile wallets have remained the same over the past three years: Apple Pay, Android Pay and PayPal. PayPal is still the most accepted mobile wallet today, even though the number of merchants who accepted PayPal stayed flat this year while the share of merchants who accepted Apple Pay and Android Pay increased in consecutive years. Visa Checkout, MasterCard s MasterPass and Samsung Pay were the next most commonly accepted major mobile wallets, with all three enjoying significant growth in merchant acceptance over the past year. The share of merchants that accepted Visa Checkout increased from 16 to 26 percent, while acceptance of MasterCard doubled (from 8 to 16 percent) and the share of merchants accepting Samsung Pay tripled (from 5 to 15 percent) since Which Mobile Wallets Do You Plan to Accept? Apple Pay Android Pay Samsung Pay PayPal Visa Checkout MasterPass AMEX Express Checkout CurrentC (MCX) SoftCard Chase Pay CapitalOne Alipay Gyft Other Uncertain 32% 32% 5% 15% 54% 28% 8% 8% 16% 9% 5% 5% 5% 6% 4% 8% 1% 6% 6% 3% 8% 16% 15% 45% 48% 34% 38% 58% 58% 16% 26%

31 Mobile Wallets There were several newer mobile wallets that might not have widespread merchant support or acceptance today, but many more merchants planned to be able to start accepting them this year. Just 9 percent of merchants accepted AMEX Express Checkout, but an additional 10 percent planned to add it in the next twelve months. Likewise, just 6 percent accepted Chase Pay today, but an additional 9 percent of merchants planned to start accepting it in the next year. Even though Apple Pay, Android Pay and PayPal are already the most accepted mobile wallets today, these were also the mobile wallets that merchants said they were most likely to start accepting in the next year as well. Which Mobile Wallets Do You Plan to Accept in the Future? Plan to Accept in Next Year 39% 25% Accept Today 40% 48% 58% 13% 32% 38% 11% 8% 15% 26% 16% 10% 9% 9% 9% 2% 6% 8% 4% 1% 15% 1% 3% 16% Apple Pay Android Pay Samsung Pay PayPal Visa Checkout MasterPass AMEX Express Checkout Chase Pay CapitalOne Alipay Gyft Other Uncertain None 31

32 Vendor Support for Mobile Wallets One factor that made it challenging for merchants to accept more mobile wallets was that many didn t have or didn t know if their vendors or service providers supported this capability. Only half of merchants today definitively said Yes, that their payment service provider (PSP) was able to support mobile wallets. More than one-in-five merchants today explicitly stated that their payment service provider did NOT support mobile wallets, while an additional 30 percent of merchants weren t sure. While just half of merchants have payment service providers that are able to support mobile wallets, even fewer were able to meet all their mobile wallet payment acceptance needs through just one provider (37 percent). Over 18 percent of merchants surveyed were going through two or more payment service providers to gain access to the mobile wallets they wanted to accept in order to execute their mobile payments strategy. 29.3% Does Your PSP Support Mobile Wallets? 50% Yes No I don t know 20.7% 18.2% Does Your PSP Offer All Needed Mobile Payment Types? 37.3% Yes No I don t know We have more than 1 PSP for multiple payment types 26.3% 18.2% 32

33 Future Implications of Mobile Wallets The 2017 Mobile Payments and Fraud Survey included new questions this year that asked merchants for their thoughts on the future of mobile wallets and how that might impact fraud. The majority of merchants, 70 percent, believed mass adoption of mobile wallets amongst consumers was between two and five years away. About 13 percent believed it will happen but take longer than five years, while just 4 percent of merchants stated that widespread consumer adoption of mobile payments will never happen. Merchant opinions regarding what effects wide consumer adoption of mobile wallets will have on fraud were fairly evenly split. About one-third of merchants believed it will have no effect, while 37 percent of merchants said fraud will decrease and 29 percent of merchants said fraud will increase as consumers more widely adopt mobile wallets. 13.4% 4.1% 6.1% How Long Until Consumers Widely Adopt Mobile Wallets? 6.5% They re already widely adopted 1 year or less 2-5 years More than 5 years Never 69.9% 33.7% Decrease Increase No Effect How Will Adoption of Mobile Wallets Impact Fraud? 37.4% 28.9% 33

34 Where Merchants Focus Mobile Efforts Mobile Payments & Fraud: 2017 Report

35 Where Merchants Focus Mobile Efforts In addition to measuring the significance of and support for the mobile channel today, the Mobile Payments and Fraud Survey also sought to understand the greatest challenges merchants faced and where they planned to focus their investments and efforts regarding mobile commerce and the mobile channel. Further, it also sought to understand the different preferences and priorities influencing the direction of merchants mobile plans and how these are impacted by the challenges and obstacles that the mobile channel posed to merchants. This portion of the survey and report includes topics and findings focused on: Current efforts merchants already have in place to enhance their mobile strategies What organizations thought consumers mobile payment preferences will be Geographic regions where organizations placed the highest priority on the mobile channel What organizations perceived as the greatest obstacles to increasing mobile adoption and implementing their mobile fraud strategies Understanding how big of an issue abandonment was in the mobile channel. 35

36 Support for Mobile Features and Capabilities Merchants already have several efforts and initiatives in place today to help them enhance and execute their mobile strategies. In general, there was more merchant support for remote m-commerce payment methods than in-store mobile payments. Whereas 47 percent of merchants offered a dedicated mobile website and 44 percent supported a mobile app for online shopping, less than 30 percent of merchants supported mobile payments at the physical point-of-sale and just 13 percent offered mobile apps that supported in-store shopping. For comparison, at the time of the inaugural Mobile Payments and Fraud Survey, just 38 percent of merchants had a dedicated mobile website, only 21 percent of merchants offered a mobile app that supported online payments, barely 15 percent of merchants accepted mobile payments at the point-of-sale and just 5 percent offered a mobile app for in-store shopping. Efforts Underway to Enhance Mobile Strategy Dedicated Mobile Website 47% Mobile Payments at the POS 29% Mobile App for Online Shopping 44% Mobile App for In-Store Shopping 13% Direct Puchase through Social Media 21% Adding Special Mobile Payment Options 41% No Such Plans 13% 36

37 Support for Mobile Features and Capabilities When comparing mobile strategy initiatives merchants have in place, there was once again a disparity between higher and lower revenue merchants. Merchants with annual revenue exceeding $250 million were more likely to accept mobile payments at the point-of-sale compared to merchants with annual revenue of less than $25 million (36 percent versus 30 percent). These larger merchants were also more likely to support mobile apps for online shopping (57 percent versus 37 percent) and more likely to support direct purchase through social media (24 versus 18 percent). Merchants with less than $25 million per year in revenue were the most likely to have efforts underway to enhance their mobile strategy via a dedicated mobile website, possibly because fewer of these merchants supported mobile apps previously. Efforts Underway to Enhance Mobile Strategy by Revenue < $5M $5-10M $10-25M $25-100M $ M $ M > $500M Dedicated mobile Website 44.7% 58.3% 47.8% 43.6% 50.0% 60.0% 40.9% Mobile payments at the POS 21.3% 37.5% 39.1% 15.4% 13.3% 32.0% 37.6% Mobile app for online shopping 38.3% 45.8% 26.1% 35.9% 30.0% 44.0% 60.2% Mobile app for in-store shopping 14.9% 16.7% 0.0% 12.8% 3.3% 8.0% 19.4% Direct purchase through social media 21.3% 20.8% 8.7% 20.5% 20.0% 28.0% 23.7% Adding special mobile payment options 38.3% 41.7% 30.4% 28.2% 36.7% 44.0% 50.5% No Such Plans 19.1% 4.2% 8.7% 25.6% 13.3% 20.0% 6.5% 37

38 Preferred Forms of Payment for Mobile Transactions Not only are there multiple mobile platforms, but consumers ultimately choose from a plethora of mobile payment options or types. Each year of the Mobile Payments and Fraud Survey, merchants have been asked which forms of payment consumers most prefer for making mobile payments, and each year credit cards have held the number one position, following in descending order by debit cards, PayPal and mobile wallets (the same order in ranking as last year. There was in increase in merchants who said Bitcoin and ACH payments will be highly preferred by consumers, but this was only indicated by 8 and 10 percent of merchants, respectively. Forms of Payment Consumers Prefer with Mobile Credit Card 90% Debit Card 60% PayPal 63% Mobile Wallet 55% Gift Card 28% Prepaid Card 25% ACH 10% Bitcoin 8% Bill2phone 5% Other 1% 38

39 Key Geographic Regions for Mobile Efforts Just over three-fourths of merchants surveyed in the 2017 Mobile Payments and Fraud Survey were headquartered in North America, and 72 percent of all merchants regardless of their headquarter locations listed North America as the highest priority region for mobile payment efforts and initiatives. Asia was the next region most likely to be considered the top priority for mobile payments, as indicated by 14 percent of merchants, while Western Europe was most likely to be considered the second highest priority region, as indicated by about 30 percent of merchants. Looking just at merchants headquartered in North America, 83 percent considered North America their highest priority region, followed by 12 percent that ranked Asia first and foremost, while 44 percent ranked Asia in their top three. The Middle East and Africa were the regions where North American merchants placed the least emphasis or priority on mobile. Over 35 percent of merchants with headquarters in North America considered South America a top three region in terms of mobile priority. Highest Priority Regions for Mobile Western Europe South America North America Middle East Eastern Europe Australasia Asia Africa Highest Priority Lowest Priority 39

40 Key Geographic Regions for Mobile Efforts Highest Priority Regions for Mobile with North America HQs Western Europe South America North America Middle East Eastern Europe Australasia Asia Africa Highest Priority Lowest Priority 40

41 Challenges Merchants Face in the Mobile Channel Managing payments and fraud in the CNP and mobile channel is no simple task. Payment options, payment preferences, fraud patterns and other factors are constantly changing, making it difficult for merchants to keep pace. Each year the Mobile Payments and Fraud Survey has sought to understand and measure these challenges. This year, it included additional questions to better understand and quantify pain points in the mobile channel. One new survey question asked merchants if they thought consumers were more concerned with a smooth and easy mobile checkout process or security for mobile transactions. Obviously, merchants should be concerned with both, but merchants were more than twice as likely to believe that consumers are more concerned with ease of use than they are with security (70 versus 30 percent). It is very likely true that consumers tend to favor convenience and ease of use over security for mobile transactions, and it is likely that many merchants have learned this the hard way. Over 40 percent of merchants stated they have mobile checkout abandonment rates exceeding 50 percent, while more than 20 percent of merchants reported a mobile checkout abandonment rate of at least 60 percent, and more than 10 percent of merchants said at least 70 percent of mobile checkouts started were abandoned before purchase. 30.4% Ease of use Security What Are Consumers More Concerned With for Mobile Transactions? 2.7% 1.8% 69.6% 5.9% Less than 50% 51%- 60% 61%- 70% 71%- 80% 81%-90% More than 90% 10.0% 19.9% Mobile Checkout Abandonment Rate 59.7% 41

42 Obstacles to Adoption of Mobile Commerce There are many potential obstacles merchants face while trying to grow revenue in the mobile channel, whether related to mobile checkout abandonment, mobile channel risk management, keeping up with new payment types or other factors. Whereas previously the Mobile Payments and Fraud Survey had asked merchants which obstacle is most difficult or relevant to their organization, this year the survey was updated to allow merchants to list all of the obstacles that were significant or pertinent to their organization. The 2017 Mobile Payments and Fraud Survey asked merchants to choose from seven common issues or obstacles they might face in the mobile channel, and nearly two-thirds of merchants said that two or more of these obstacles impacted them directly. Close to half of all merchants said that the costs of implementing new technology (45 percent) and the required IT resources (44 percent) were obstacles they faced while trying to grow mobile adoption for their companies. More than 38 percent of merchants surveyed indicated they dealt with three or more obstacles to growing mobile adoption, while over 20 percent dealt with four or more and 10 percent confronted five or more of these obstacles. At least 30 percent of merchants were concerned with addressing how to manage fraud risk in the mobile channel, addressing consumer security concerns, making it easier for consumers to transact and taking payments more efficiently. The obstacle least likely to concern merchants was the ability to manage the complexity of new payment types. Nevertheless, it was still a concern for one in four merchants. Obstacles to Mobile Adoption Addressing consumer security concerns with the platform 31% Addressing how to manage fraud risk 34% Making it easier for consumers to transact vs just shopping 32% Making it possible to take payments more efficiently 30% Managing complexity of new payment types 26% Cost of implementing new technology 45% IT resources 44% 42

43 Obstacles to Adoption of Mobile Commerce There were notable differences between merchant segments or vertical markets and how they ranked various challenges to growing mobile adoption and ultimately revenue. For example, merchants overall said the challenge of managing fraud risk was the third biggest obstacle to increasing mobile adoption (34 percent). However, in the Computer/Electronics, Telecom Gaming and Dating/Social merchant segments, more than half of merchants listed managing fraud risk as a major obstacle to growing mobile adoption. Merchant segments that were most concerned with taking payments more efficiently included Apparel/Accessories (39 percent) and Ticketing (43 percent). Biggest Obstacles to Mobile Adoption Consumer Security Concerns How to Manage Fraud Risk Making It Easier to Transact Take Payments More Efficiently New Payment Types Cost of Implementing New Payments IT Resources Apparel/Accessories 33% 36% 33% 39% 28% 44% 47% Computer/Electronics 45% 53% 28% 30% 33% 45% 55% Digital Goods 39% 26% 33% 28% 30% 52% 39% Health/Beauty 30% 40% 28% 26% 35% 37% 51% Housewares/Home Furnishings 37% 37% 34% 27% 34% 51% 34% Toys/Hobbies 35% 41% 24% 24% 27% 43% 51% Non-Apparel Sporting Goods 37% 37% 30% 27% 30% 43% 43% Travel Services 40% 40% 24% 24% 32% 60% 56% Food/Drug 32% 46% 18% 25% 32% 36% 46% Jewelry 30% 33% 22% 26% 30% 48% 56% Ticketing 35% 30% 35% 43% 26% 61% 57% Books/Music/Video 36% 36% 24% 24% 36% 56% 48% Hardware/Home Improvement 39% 43% 30% 30% 39% 43% 43% Professional Services 36% 40% 32% 28% 16% 52% 32% Games 39% 33% 0% 17% 33% 56% 56% Office Supplies 25% 30% 15% 10% 25% 55% 45% Flowers/Gifts 35% 41% 12% 18% 18% 41% 35% Telecom 70% 50% 50% 30% 50% 40% 20% Gaming 46% 54% 0% 23% 38% 23% 46% Other Services 23% 31% 31% 38% 15% 46% 38% Financial Services 33% 25% 25% 8% 33% 58% 50% Automobiles/Auto Parts 15% 23% 38% 15% 23% 31% 38% Other 25% 50% 38% 50% 13% 38% 38% Insurance 57% 29% 14% 14% 43% 57% 57% Alcohol/Tobacco 29% 29% 0% 14% 14% 43% 71% Money Movement/Transfer 67% 0% 33% 0% 33% 67% 67% Dating/Social 33% 67% 0% 33% 0% 0% 0% 43

44 Obstacles to Adoption of Mobile Commerce Another new question in the 2017 Mobile Payments and Fraud Survey went beyond the obstacles hindering mobile adoption overall, and sought to more specifically understand the obstacles merchants faced with mobile fraud and risk management strategies. Merchants were asked if any of these five common obstacles were ones they faced with their mobile fraud strategies: choosing the right solution partner, the costs and complexity of implementing a new solution, gathering IT resources, finding fraud prevention solutions that were adequate for the mobile channel, and the number of tools need to manage fraud risk in the mobile channel. Less than half of merchants (46 percent) cited two or more of these five obstacles as issues that directly impacted their organization. The cost and complexity of implementing a new fraud solution, listed by 52 percent of merchants, and IT resources, listed by 47 percent of merchants, were the two most commonly cited obstacles to a more successful mobile fraud prevention strategy. Only 9 percent of merchants said that mobile fraud prevention strategies required too many tools or that this was a major obstacle. Obstacles to Mobile Fraud Strategy Choosing the right solution partner 32% Cost and complexity of new solution 52% IT resources 47% Finding antifraud solutions that prevent mobile fraud 30% It requires too many tools 9% 44

45 Obstacles to Adoption of Mobile Commerce As with previous questions, there were again differences between vertical markets or merchant segments regarding what obstacles merchants deemed most detrimental to implementing their mobile fraud strategies. While just 30 percent of merchants overall were concerned with finding anti-fraud solutions that prevent fraud in the mobile channel, this was a major concern for at least 40 percent of merchants in the Sporting Goods, Food/Drug, Office Supplies, Flowers/Gifts, Professional Services and Financial Services merchant segments. The cost and complexity of a new fraud solution was the obstacle merchants were most concerned with overall, as 52 percent of merchants indicated this. There were ten merchant segments, however, in which 40 percent of less of merchants considered this as a major obstacle. These merchant segments included Health/Beauty, Housewares/Home Furnishings, Jewelry, Food/Drug, Office Supplies and Travel Services. Biggest Obstacles to Implementing Mobile Fraud Strategy Choosing the right solution partner Cost and complexity of new solution IT resources Finding antifraud solutions that prevent mobile fraud It requires too many tools Apparel/Accessories 33.3% 52.8% 45.8% 31.9% 11.1% Computer/Electronics 35.0% 50.0% 60.0% 37.5% 12.5% Digital Goods 34.8% 45.7% 41.3% 32.6% 8.7% Health/Beauty 34.9% 39.5% 51.2% 30.2% 9.3% Housewares/Home Furnishings 31.7% 36.6% 41.5% 39.0% 9.8% Toys/Hobbies 27.0% 51.4% 48.6% 32.4% 8.1% Non-Apparel Sporting Goods 26.7% 46.7% 53.3% 40.0% 10.0% Food/Drug 32.1% 39.3% 53.6% 42.9% 17.9% Jewelry 37.0% 37.0% 55.6% 29.6% 11.1% Professional Services 32.0% 48.0% 56.0% 44.0% 4.0% Travel Services 44.0% 40.0% 56.0% 24.0% 12.0% Books/Music/Video 32.0% 48.0% 44.0% 40.0% 8.0% Ticketing 30.4% 43.5% 56.5% 26.1% 17.4% Hardware/Home Improvement 30.4% 47.8% 52.2% 30.4% 8.7% Office Supplies 20.0% 40.0% 50.0% 40.0% 5.0% Flowers/Gifts 35.3% 47.1% 29.4% 52.9% 11.8% Financial Services 33.3% 66.7% 75.0% 41.7% 16.7% Games 33.3% 27.8% 50.0% 33.3% 11.1% Other Services 23.1% 76.9% 46.2% 30.8% 30.8% Gaming 23.1% 38.5% 69.2% 30.8% 7.7% Telecom 50.0% 70.0% 50.0% 20.0% 10.0% Automobiles/Auto Parts 15.4% 46.2% 46.2% 15.4% 0.0% Insurance 28.6% 28.6% 85.7% 28.6% 14.3% Other 62.5% 75.0% 25.0% 0.0% 0.0% Alcohol/Tobacco 28.6% 28.6% 42.9% 28.6% 0.0% Money Movement/Transfer 33.3% 66.7% 66.7% 0.0% 0.0% Dating/Social 33.3% 100.0% 0.0% 0.0% 0.0% 45

46 The State of Mobile Fraud Mobile Payments & Fraud: 2017 Report

47 The State of Mobile Fraud While documenting the state of mobile payments is a major component of the annual Mobile Payments and Fraud Survey, another key component of this study is focused on measuring and understanding mobile channel fraud. To support this effort. merchants were asked the following questions: Is the mobile channel higher risk than standard ecommerce? Is mobile channel fraud growing? How have recent data breaches and the rollout of EMV impacted fraud? Is the Mobile Channel Higher Risk? The fraud-focused section of the Mobile Payments and Fraud Survey begins by measuring merchant perceptions of the level of fraud risk in the mobile channel relative to conventional web ecommerce. Comparing merchant responses from the past few years shows that they may becoming more complacent, or were at least less likely to say the mobile channel is any riskier than standard web ecommerce. While more than one-quarter of merchants said the mobile channel is riskier than web ecommerce today, this was down from 41 percent in 2016 and 43 percent two years ago. Meanwhile, the share of merchants who said that the mobile channel is less risky compared to web ecommerce has tripled from 5 to 15 percent of merchants since Mobile Fraud Risk Relative to ecommerce 4.7% 9.8% 51.4% 30.1% 49.2% 20.7% 15.0% 59.9% 17.6% 13.8% 13.9% 7.5% Less Risky Just as Risky Somewhat Riskier Far Riskier 47

48 Is the Mobile Channel Higher Risk? Although 60 percent of merchants overall said the mobile channel was equally as risky as standard web ecommerce, there were some merchant segments in which merchants considered the mobile channel to be riskier. In all, there were 12 merchant segments in which at least one-third of merchants said the mobile channel was riskier, while more than half in the Automobiles/Auto Parts and Gaming merchant segments said the mobile channel was higher risk, as did more than 40 percent in the Food/Drug and Flowers/Gifts merchant segments. Mobile Fraud Risk Relative to ecommerce Far Riskier Somewhat Riskier Just as Risky Less Risky Apparel/Accessories 2.9% 17.1% 61.4% 18.6% Digital Goods 13.3% 20.0% 48.9% 17.8% Health/Beauty 4.8% 21.4% 57.1% 16.7% Housewares/Home Furnishings 4.9% 26.8% 51.2% 17.1% Computer/Electronics 7.5% 22.5% 50.0% 20.0% Toys/Hobbies 5.6% 27.8% 50.0% 16.7% Non-Apparel Sporting Goods 3.3% 26.7% 56.7% 13.3% Jewelry 3.6% 32.1% 50.0% 14.3% Books/Music/Video 7.4% 18.5% 48.1% 25.9% Food/Drug 3.7% 37.0% 40.7% 18.5% Hardware/Home Improvement 4.2% 20.8% 58.3% 16.7% Travel Services 0.0% 16.7% 70.8% 12.5% Professional Services 8.7% 17.4% 65.2% 8.7% Ticketing 8.7% 8.7% 78.3% 4.3% Office Supplies 0.0% 35.0% 55.0% 10.0% Flowers/Gifts 5.9% 35.3% 29.4% 29.4% Games 5.9% 29.4% 41.2% 23.5% Gaming 14.3% 35.7% 28.6% 21.4% Automobiles/Auto Parts 15.4% 38.5% 30.8% 15.4% Financial Services 0.0% 33.3% 66.7% 0.0% Other Services 0.0% 8.3% 66.7% 25.0% Telecom 10.0% 20.0% 60.0% 10.0% Other 25.0% 37.5% 25.0% 12.5% Alcohol/Tobacco 0.0% 28.6% 28.6% 42.9% Insurance 0.0% 14.3% 71.4% 14.3% Dating/Social 0.0% 0.0% 66.7% 33.3% Money Movement/Transfer 0.0% 33.3% 66.7% 0.0% 48

49 Is Mobile Fraud Increasing? Although only 25 percent of merchants this year said that the mobile channel was higher risk than web ecommerce, nearly 40 percent of merchants indicated that mobile channel fraud has increased. This was up from just 23 percent of merchants who said mobile fraud increased between 2015 and The share of merchants who stated that fraud in the mobile channel is decreasing fell from 17 percent last year to just 6 percent of merchants this year. Merchants who said that mobile channel fraud remained the same fell slightly from 60 to 55 percent of merchants. Is Fraud Increasing or Decreasing in the Mobile Channel? 23% 39% Increased Remained the same Decreased 60% 55% 17% 6%

50 Is Mobile Fraud Increasing? One hundred percent of merchants were able to report if mobile channel fraud had been growing, shrinking or staying the same in absolute terms. However, more than 42 percent of merchants were uncertain whether or not mobile fraud was increasing in relative terms, i.e., was fraud growing at a faster rate than mobile channel transaction volume, at a slower rate, or at the same rate. More than 21 percent of merchants stated that mobile channel fraud had increased at a faster rate than their mobile channel volume growth overall, 29 percent said that mobile fraud had grown equally as fast as mobile transaction growth, and less than 8 percent of merchants said that mobile fraud had declined as a percentage of their total transactions. Has Mobile Fraud Kept up with Mobile Volume Growth? 21.3% Mobile Fraud has Increased Mobile Fraud has Grown Proportionally Mobile Fraud has Decreased Uncertain 42.1% 29.0% 7.7% 50

51 Where Does Mobile Fraud Occur? International vs. Domestic Transactions Merchants were also asked if they found mobile channel fraud to be coming more from domestic or international orders. This year, merchants collected more data regarding their mobile orders and were able to do a better job of recognizing the origins of mobile orders (beyond merely detecting mobile devices in a transaction). In the 2016 Mobile Payments and Fraud Survey, 32 percent of merchants were not able to tell whether a mobile order came from abroad. This year, that number dropped to 28 percent. The share of merchants who definitively said more fraud came from domestic orders increased by 7 percentage points over last year, while those reporting that more mobile fraud came from international orders fell from 22 to 18 percent of merchants. Merchants were additionally asked if fraud has prevented them from expanding sales and business into other regions, to which more than 26 percent of merchants said Yes. Is Fraud Coming More from Domestic or International Orders? % 22% 16% 32% 38% 18% 17% 28% Domestic Orders International Orders Relatively Equal Can t Tell 26.2% No Yes Has Fraud Risk Kept Your Organization from Expanding to Additional Regions? 73.8% 51

52 Where does Mobile Fraud Occur? Fraud Across Payment Types Other additions to the 2017 Mobile Payments and Fraud Survey included two questions that examined merchant opinions regarding the payment systems and platforms associated with mobile risk. The majority of merchants, 60 percent, believed browser-based mobile payments were at the greatest risk of fraud. About one in four merchants stated that mobile app-based payments were at the greatest risk for fraud, and 14 percent said that mobile contactless payments presented the highest risk of fraud. When asked which brand they identified most with the word safety, merchants were more likely to say Apple (61 percent) or Nobody (30 percent). Just 4 percent of merchants identified either the Android or Blackberry brands with safety, while only 1 percent associated Windows with safety. 1.8% 24.7% Browser-based Contactless Mobile App Other Payment System at Greatest Risk for Fraud 13.7% 59.8% 30.1% Apple Android Windows Blackberry None Brand Identified Most with Safety 1.4% 3.7% 3.7% 61.2% 52

53 Events and Factors Influencing Fraud Management For a third consecutive year, the Mobile Payments and Fraud Survey tracked how many merchants reported spikes in fraud following major data breaches, and 2017 was the second year that the survey asked merchants about how fraud has grown post-emv implementation. The Impact of Data Breaches Merchants who indicated Yes, that they did see a noticeable increase in fraud following one or more major data breaches stayed relatively flat from last year s survey, at 23 percent of merchants surveyed. Those who stated No, however, fell from 48 to 41 percent. At the same time, the percentage of merchants who were uncertain if fraud increased or not following data breaches increased from 30 to 36 percent. Merchants Who Saw Increase in Fraud Following Major Data Breaches 42.6% 29.7% 36.0% Uncertain No Yes 48.0% 41.2% 42.3% 15.1% 22.3% 22.8%

54 Events and Factors Influencing Fraud Management The 2017 Mobile Payments and Fraud Survey added and additional two new questions regarding data breaches. The first focused on the most damaging aspects of a data breach whether from fraud that resulted from the breach or other types of damage. It seems that merchants were most likely to be concerned with the brand damage following a data breach, as 44 percent of merchants said the most damaging aspect of suffering a data breach would be consumers perceiving them (the merchant) as having weak security. Next, merchants were most concerned with the loss of personal and financial data, considered the most damaging by about 34 percent of merchants. The second question asked merchants whether their organization had made changes to fraud prevention in response to data breaches. This doesn t imply that the organization itself was impacted by a data breach directly. Rather, the question attempted to gage merchant response to the likely increases in account takeover attempts and fraud attempts overall as the stolen credentials compromised in data breaches became available. Less than one-third of merchants indicated that they had made any changes to their fraud prevention strategies in response to major data breaches and the subsequent wide availability of identity data and payment credentials. 15.6% 6.8% Most Damaging Aspect of Data Breach 44.0% Consumers perceiving a company has weak security Loss of Financial Data Loss of Personal Data That Fraud Results from a Data Breach Uncertain 20.4% 13.2% 31.6% Merchants Who Have Made Changes to Fraud Prevention Due to Breaches No Yes 68.4% 54

55 Events and Factors Influencing Fraud Management The Impact of EMV A major trend influencing fraud and risk management today is the increasing use and acceptance of EMV cards at retail point-of-sale locations in the United States. Beginning with last year s Mobile Payments and Fraud Survey, merchants were asked whether they had noticed an increase in cardnot-present (CNP) fraud following the roll-out of EMV. At the time of that survey, the EMV liability shift in the U.S. had taken place less than six months previously. Just 12 percent of merchants said they had noticed any increase in fraud due to EMV implementation. This year, with nearly 1. 5 years elapsed since the EMV liability shift date, that number has nearly tripled, with 34 percent of merchants saying Yes, they had seen an increase in CNP fraud. Correspondingly, merchants who said No, that CNP fraud has not increased due to EMV fell from 46 percent of merchants in 2016 to 28 percent in Merchants Reporting Increase in CNP Fraud Post-EMV Uncertain 41.5% 38.4% No Yes 46.3% 28.0% 12.2% 33.6%

56 Detecting Mobile Devices and Preventing Mobile Fraud To better understand the state of mobile fraud, the Mobile Payments and Fraud Survey seeks to measure merchants ability to detect mobile devices, the importance merchants attach to having that ability, what mobile risk management tools and services merchants have in place, and which they find to be the most successful at preventing fraud in the mobile channel. Importance of Detecting Mobile Devices Most merchants agreed on the importance of detecting the presence of a mobile device in a transaction. More than 70 percent of merchants stated that it was Very Important or Important to be able to detect mobile devices, up from 60 percent last year. Nearly half of merchants this year 47 percent said it was Very Important to be able to recognize mobile devices, up from 39 percent of organizations at the time of the inaugural Mobile Payments and Fraud Survey. Just 3 percent of merchants said that being able to detect mobile devices was Not Very Important, while 18 percent considered it Somewhat Important. Importance of Detecting Mobile Devices 1% 18% 3% 7% Very Important Important Somewhat Important Not Very Important Neutral Not Sure 47% 24% 56

57 Importance of Detecting Mobile Devices Merchants earning more than $500 million annually were much more likely to say being able to detect mobile devices was Very Important relative to merchants with annual revenue of less than $5 million, at 61 versus 35 percent. Nearly 80 percent of merchants with annual revenue greater than $100 million said it was Important or Very Important to be able to detect mobile devices, compared to 62 percent of merchants with annual revenue of less than $100 million. Over 57 percent of merchants with annual revenue over $100 million considered being able to detect mobile devices Very Important, compared to 36 percent of merchants with annual revenue of less than $100 million. Importance of Being Able to Detect Mobile Devices by Revenue 2% 9% 4% 4% 26% 22% 5% 11% 12% 8% 4% 12% 3% 12% Not Sure Neutral Not very Important 24% 9% 21% 27% 23% Somewhat Important Important 17% 13% 8% 28% Very Important 26% 17% 37% 35% 52% 39% 26% 54% 48% 61% < $5 M $5-10 M $10-25 M $ M $ M $ M > $500 M 57

58 Importance of Detecting Mobile Devices There were certain vertical markets in which merchants put more emphasis on mobile and being able to detect mobile devices. This included the Office Supplies, Gaming, Food/Drug, Housewares/Home Furnishings and three other merchant segments. Two-thirds or more of these merchant segments considered being able to detect mobile devices Very Important. There were only five merchant segments where about one in five merchants said it was just Somewhat Important to be able to detect mobile devices: Apparel/Accessories, Sporting Goods, Jewelry, Other Services and Money Movement/Transfer. Importance of Detecting Mobile Devices Very Important Important Somewhat Important Not Very Important Neutral Not Sure Apparel/Accessories 45% 29% 20% 1% 4% 1% Digital Goods 46% 33% 19% 0% 0% 2% Computer/Electronics 54% 29% 10% 4% 2% 0% Housewares/Home Furnishings 65% 19% 17% 0% 0% 0% Health/Beauty 62% 26% 11% 0% 2% 0% Toys/Hobbies 56% 24% 17% 0% 2% 0% Travel Services 60% 23% 11% 0% 6% 0% Non-Apparel Sporting Goods 48% 30% 21% 0% 0% 0% Food/Drug 69% 19% 13% 0% 0% 0% Books/Music/Video 55% 19% 16% 6% 3% 0% Jewelry 57% 23% 20% 0% 0% 0% Professional Services 50% 7% 17% 13% 13% 0% Hardware/Home Improvement 63% 22% 15% 0% 0% 0% Ticketing 37% 41% 19% 0% 4% 0% Office Supplies 70% 22% 9% 0% 0% 0% Games 76% 10% 14% 0% 0% 0% Flowers/Gifts 63% 21% 11% 0% 0% 5% Gaming 88% 6% 6% 0% 0% 0% Automobiles/Auto Parts 79% 0% 14% 0% 7% 0% Financial Services 43% 43% 7% 0% 7% 0% Other Services 38% 15% 23% 0% 23% 0% Telecom 62% 15% 8% 8% 0% 8% Insurance 44% 44% 0% 0% 11% 0% Other 56% 33% 11% 0% 0% 0% Alcohol/Tobacco 50% 25% 13% 0% 0% 13% Money Movement/Transfer 40% 40% 20% 0% 0% 0% Dating/Social 75% 25% 0% 0% 0% 0% 58

59 Ability to Detect Mobile Devices in Transactions There has been a dramatic increase in the percentage of merchants who are able to detect when a transaction is coming from a mobile device since the inaugural Mobile Payments and Fraud Survey was first published in 2013, and even since last year s survey. Five years ago, more than 55 percent of merchants were not able to detect whether a transaction came from a mobile device. Last year, 38% of merchants still were not able to detect whether a transaction came from a mobile device were. But this year, only 14 percent of merchants reported this inability. Merchants who were able to identify the type of mobile device being used (e.g., smartphone versus tablet, and ios vs. Android operating system) in addition detecting the use of a mobile device increased from16 percent of merchants in the inaugural survey to 29 percent last year and increasing further to 37 percent this year. While 86 percent of merchants were able to detect the use of a mobile device and its type up from 71 percent last year most of the growth came from merchants who only added the capability to detect the use of a mobile device (not the ability to identify the type of device: from 33 to 49 percent of merchants. Ability to Detect Mobile Devices 16.4% 28.4% 15.8% 17.0% 34.2% 39.7% 29.1% 36.9% Yes, can tell if it s a mobile and what type of device it is Yes, can tell if it s a mobile device No 32.7% 48.7% 55.2% 50.0% 43.3% 38.2% 14.4%

60 Ability to Detect Mobile Devices in Transactions Once again, there was a significant disparity between the largest merchants those earning more than $500 million in annual revenue and those generating less than $5 or $10 million annually. Fewer than 6 percent of merchants in the largest revenue category were not able to detect mobile devices, compared 28 percent of merchants with annual revenue of less than $5 million and 26 percent of merchants with annual revenue of less than $10 million. Among all merchants with annual revenue greater than $10 million, only 10 percent were not able to detect mobile devices, while 41 percent could tell what type of mobile device was being used. Ability to Detect Mobile Devices by Revenue 34.8% 8.7% 39.1% 44.7% 34.6% 40.0% 41.1% Yes, can tell if it s a mobile and what type of device it is Yes, can tell if it s a mobile device No 69.6% 37.0% 52.2% 42.1% 50.0% 40.0% 53.3% 28.3% 21.7% 8.7% 13.2% 15.4% 20.0% 5.6% < $5 M $5-10 M $10-25 M $ M $ M $ M > $ 500 M 60

61 Ability to Detect Mobile Devices in Transaction There were six segments in which at least 20 percent of merchants were not able to detect mobile devices, including Jewelry, Professional Services and Flowers/Gifts. There were five vertical markets where at least half of merchants could not only detect mobile devices, but also see the type of device. There were just three merchant segments (Apparel/Accessories, Automobiles/Auto Parts and Financial Services) where less than one-third of merchants could see the type of mobile device being used. Ability to Detect Mobile Devices No Yes-Only if Mobile Yes-Including Type of Device Apparel/Accessories 18.8% 53.8% 27.5% Digital Goods 9.6% 53.8% 36.5% Computer/Electronics 18.8% 47.9% 33.3% Housewares/Home Furnishings 16.7% 45.8% 37.5% Health/Beauty 12.8% 51.1% 36.2% Toys/Hobbies 14.6% 51.2% 34.1% Travel Services 2.9% 42.9% 54.3% Non-Apparel Sporting Goods 9.1% 48.5% 42.4% Food/Drug 15.6% 40.6% 43.8% Books/Music/Video 12.9% 41.9% 45.2% Jewelry 20.0% 36.7% 43.3% Professional Services 26.7% 36.7% 36.7% Hardware/Home Improvement 11.1% 44.4% 44.4% Ticketing 7.4% 48.1% 44.4% Office Supplies 17.4% 47.8% 34.8% Games 14.3% 33.3% 52.4% Flowers/Gifts 21.1% 42.1% 36.8% Gaming 0.0% 52.9% 47.1% Automobiles/Auto Parts 14.3% 71.4% 14.3% Financial Services 7.1% 64.3% 28.6% Other Services 30.8% 38.5% 30.8% Telecom 23.1% 38.5% 38.5% Insurance 11.1% 33.3% 55.6% Other 11.1% 55.6% 33.3% Alcohol/Tobacco 25.0% 0.0% 75.0% Money Movement/Transfer 0.0% 60.0% 40.0% Dating/Social 0.0% 50.0% 50.0% 61

62 Does the Mobile Channel Require Additional Tools? In last year s Mobile Payments and Fraud Survey, merchants exhibited less concern about managing mobile fraud risk, with 36% of merchants stating that standard ecommerce fraud tools could support the mobile channel and that it did NOT require specialized fraud tools. This year, however, that percentage dropped to 29%, while 71 percent said that the mobile channel did require additional tools for managing risk, and 25 percent further stating that the mobile channel required highly specialized tools for managing fraud risk. Does the Mobile Channel Require Additional Tools for Managing Fraud Risk? 17.2% 32.2% 24.2% 20.0% 24.8% Yes, mobile requires very specialized fraud tools Yes, ecomm fraud processes can t fully support mobile No, standard ecomm can support it 45.7% 47.4% 44.5% 46.5% 42.3% 31.7% 25.5% 28.4% 35.5% 28.8%

63 Does the Mobile Channel Require Additional Tools? A merchant s annual revenues impacted their perceptions in this area. While 29 percent of merchants overall didn t believe the mobile channel required additional fraud tools beyond what they had in place for conventional web ecommerce, only 23 percent of merchants with annual revenue greater than $500 million felt this way. Compare this with an average of 32 percent for smaller merchants (annual revenue less than $5 million and $5-$10 million). Further, the highest revenue merchants (annual revenue greater than $500 million) were more likely to say that mobile required highly specialized tools 25% of these merchants compared to 21 percent of merchants with annual revenue of less than $10 million. Does the Mobile Require Additional Tools for Managing Fraud? (by Revenue) 20.5% 22.2% 31.6% 20.0% 24.0% 18.2% 30.1% Yes, mobile requires very specialized fraud tools Yes, ecomm fraud processes can t fully support mobile No, standard ecomm can support it 48.7% 44.4% 42.1% 43.3% 48.0% 50.0% 46.6% 30.8% 33.3% 26.3% 36.7% 28.0% 31.8% 23.3% < $5 M $5-10 M $10-25 M $ M $ M $ M > $500 M 63

64 Tools Deployed to Combat Mobile Fraud When it comes to detecting and preventing fraud in the mobile channel, merchants once again reported using a wide variety of tools, techniques, signals and services. While the survey has added a few new tools to the list that respondents choose from, most of the tools and services merchants use can be compared to years past. For example, cardholder authentication (programs like Verified by Visa and MasterCard SecureCode), card security codes (CVV) and one-time passwords (OTPs) are not new tools to fraud prevention, but were added to this year s survey as options for merchants to select. This year, the fraud prevention tools, techniques and services used most by merchants to prevent fraud in the mobile channel were card security codes or checking the CVV (58 percent), AVS (46 percent), Fraud Scoring (48 percent), Device ID (38 percent), Velocity Checks (35 percent) and a Complete Fraud Platform (47 percent). Whereas ID Authentication was the most used tool for mobile channel fraud prevention in each of the first three years of the Mobile Payments and Fraud Survey, it has declined from being used by 32 percent of merchants in 2015 to just 15 percent of merchants today. While 25 percent of merchants used Fraud Scoring and 20 percent had Complete Fraud Platforms for managing risk in the mobile channel in 2015, this year these have each increased to being used by nearly half of merchants. 64