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Considerations to Eradicate Mobile Fraud

The ever-increasing demand for smartphones means that it is estimated that the number of users will increase to 3.5 billion by the end of 2020 with an estimated value of $1.46 trillion. The demand and ubiquity of mobile devices means that unfortunately the telecommunications industry is not immune to fraud and ensuring that the industry is working towards eliminating instances of fraudulent activity is of the utmost importance to mobile operators. 

Industry experts have estimated that the industry loses around $17 billion on an annual basis and even this is believed to be a relatively conservative estimate. Over the previous decade mobile devices have tripled in value and are therefore so costly that they are seen as being increasingly valuable by criminals and fraudsters. 

As well as ensuring that they are increasing their customer base, combatting fraud needs to be a key consideration for mobile operators. The ways in which fraud is carried out are relatively varied and therefore sustained dedication is required to eradicate it from the ecosystem.

Increasing Customer Base

The challenges with acquiring new long-term customers is something that operators need to ensure is considered as part of their strategy, however the wider implications of fraud are a key part of this challenge and eradicating fraud will assist operators in attracting new customers, while also have a positive impact on end users.

The demand for post pay mobile contracts continues to be strong as it is a model that enables users to spread payments over a prolonged period, usually 12-24 months. This means that it is important that MNOs continue to offer this as a payment option for end users.

There are, however, drawbacks as the model is suspectable to instances of fraud as it is one that enables criminals to obtain high value devices relatively easily by using illegally acquired personal details of others. In addition to this, there is also the issue that the model excludes those who do not possess high credit ratings – this is reflected by the fact that mobile device contract rejection is believed to be around 70%, with this figure increasing to 85% during promotions and sales.

This causes issues for MNOs who are unable to substantially increase their customer base due to end users being unable to obtain the devices due to financial restrictions and is a knock-on effect of fraud within the industry.

Non-payment of Bills

Unfortunately, even once a user has been acquired, there are still issues in relation to revenue collection in countries across all continents.

Network operators report that Post pay bill drop is estimated to be 15% which has doubled in 2020 due to the ongoing Coronavirus pandemic and economic uncertainty which is being witnessed on a global level. When we examine this on a more refined basis, Mexico, Central America and Colombia report a figure that is believed to be close to 25-35% and increasing to 40% Peru – all of these figures are unsustainable in the long-term and is an area that requires immediate attention.

When we look at European countries, instances are reported for both existing and new customers, with 2-3% of current customers and 15% of new customers unable to keep up levels of payment.

In South Africa, 9% of all devices sold are blacklisted each month for non-payment via a manual process with none of the revenue lost ever being recovered.

Not only does this lack of payment negatively impact carriers but the consequences are also felt by end users as those who are able to keep up with payments see overall costs increase as lost finances need to be recouped.

There are options for operators to work towards reducing instances of fraud, including carrier subsidy locks so that users are committed to a device and network for the duration of a contract. These can still be unlocked by end users and in some countries, such as Singapore, Israel and Canada, the practice is actually illegal and cannot be implemented.

Porous Supply Chains

Theft and fraud at different stages in the supply chain have a devastating impact on MNOs, especially in the Americas where up to 15,000 devices in Brazil are stolen. In the USA one single pallet of mobile devices has an estimated street value of $1 million, meaning that not having robust mobile fraud protection at different stages of the supply chain can have devastating repercussions.

There are believed to be around 400,000 devices per year stolen in the United Kingdom, and this estimated figure is actually considered to be conservative with many instances of theft being unreported and the actual number is believed to be at least twice this number. The African Operator Group has estimated that $250 million is lost each year due to devices and equipment being stolen. In Russia, theft in the supply chain means that approximately 12% of all stock is stolen before it even enters the point of sale.

Device Trafficking 

The widespread adoption of the internet across the world, including in developing countries has meant that the grey market has seen increases in activity, which has opened up another avenue where MNOs see losses in revenue and profits. 

The GSMA has estimated that around 4 million devices are trafficked on a global basis, meaning that the cost of bulk prepaid trafficking is somewhere in the region of $900 million, a loss of around $225 per trafficked handset.

To summarise, it is imperative that MNOs consider and invest in innovative solutions to assist in preventing mobile fraud in an attempt to eradicate instances at all stages of the smartphone lifecycle. This has clear benefits for both MNOs and end users who will benefit from carrier subsidies for the latest high-end handsets and not have to be reliant on having a strong credit rating to obtain the latest and sought-after device. 

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