Mobile payments are becoming wildly popular in China, their growth outstripping the use of credit card payments common in the rest of the world. However, mobile payments’ ease of use and popularity creates challenges for businesses trying to detect and stop payments fraud. The patterns that tip off fraud detection teams to suspicious payments made with credit cards – such as multiple payments of similar amounts transacted by an account during a short timeframe – don’t necessarily carry over to mobile payments in China. To stop fraud, merchants and payment processors operating in China need local knowledge of how people pay, and how fraudsters exploit these preferences.
Mobile payments for everything from groceries to cars
To understand how payments fraud in China deviates from other countries, it’s good to get a sense of the uniqueness of the Chinese payments market. First of all, mobile payments are vastly preferred by consumers: mobile payments in China totaled USD 9 trillion in 2016, compared with just USD 112 billion in the United States, according to iResearch Consulting Group.
What’s more, Chinese consumers don’t just use mobile payments for day-to-day shopping. With their mobile devices, they can even make purchases for pricey tangible assets, since single transaction limits for mobile payments can run as high as RMB 300,000 (USD 47,500). Therefore, mobile payments are a useful substitute for other forms of payment such as checks and cash.
The relative rarity of credit card transaction fraud in China is not simply due to the availability of alternative payments. In China, credit card holders are usually responsible for fraudulent charges – the opposite of markets like the US, where cardholders can easily dispute a charge and merchants are the ones hit by chargebacks. Since Chinese credit card users are on the hook for fraud, they often employ two-factor authentication to protect their transactions – much more so than in other countries, where such user-driven protection is not typical even for sensitive financial accounts.
Common mobile payment activity might seem suspicious
However, just because credit cards are not a favored form of payment doesn’t mean fraud is under control in China. A survey from China UnionPay shows that 60% of consumers were exposed to mobile-payment security threats such as information leaks or malicious attacks. In an effort to clamp down on fraud and money laundering, the country’s central bank, People’s Bank of China, just announced a limit on some QR code payments (a common feature of mobile payment systems) of RMB 500 (about USD 80).
To combat fraud, merchants and payment processors need to fine-tune their fraud detection systems to reduce the likelihood of false positives. What seems suspicious in the rest of the world may be common and legitimate behaviour in China.
For example, hongbao or “red envelope” payments are monetary gifts given out to friends and family for special occasions such as weddings or Chinese New Year. Before the advent of mobile devices, the payments were handed out in red paper envelopes filled with cash. Today, Chinese payment platforms like Alipay and Tenpay allow users to give out hongbao digitally. Normally, a blizzard of payments from one person to dozens of different people, made in the space of a few minutes, would activate payment providers’ fraud alert systems. But in China, such payments are nothing out of the ordinary.
Similarly, China’s mobile payment platforms make it easy to split bills when people are dining out, such as the “Go Dutch” feature in WeChat. With such features, consumers can scan a QR code to pay restaurant bills and split payments among several people. To fraud detection systems, this looks suspect because the same payment amount is being sent to the same merchant at the exact same time, which can be a sign of a fraudster setting up a fake merchant account and funneling money into it from compromised user accounts. Once again, just a normal transaction in China.
On the other hand, the rapid expansion of mobile payments has also opened up opportunities for fraud and financial crime. Lagging regulations around the mobile payments industry has enabled criminals to mass-register mobile wallet accounts while bypassing know-your-customer (KYC) requirements that are required for bank account openings. These loosely supervised accounts can then be used to rapidly transfer money for purposes of money laundering and other criminal activity.
Merchants and payment processors that are new to China’s payment market need to do deeper dives into how mobile payments can foster fraud – and how the fraudsters’ methods are different than what’s seen elsewhere in the world. Part of the process is starting conversations with fraud detection vendors to make sure they too are sensitive to regional differences in payment preferences – and how these preferences alter the fraud landscape.
About Yinglian Xie
Yinglian Xie is CEO and co-founder of DataVisor and has over 10 years of experience in security, specializing in fighting sophisticated attacks using AI and machine learning technology. Previously, Yinglian worked at Microsoft protecting hundreds of millions of users across a wide range of Microsoft products.
About DataVisor
Founded in 2013, DataVisor is the leading fraud detection solution utilizing unsupervised machine learning to identify fraudulent transactions, spam and abuse, identity theft, application fraud, insider abuse, money laundering and more. DataVisor’s full-stack risk platform provides an end-to-end solution for detecting and preventing attacks by modern cybercriminals, and protects the largest financial institutions and internet properties in the world. DataVisor’s customers in China include leading brands such as Toutiao, Alibaba Cloud, Weidian, and Momo.
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