Beware of Handset Fraud: A Growing Threat
Telcos are continuously innovating and evolving their business models to counter the declining revenues from traditional services. One such business model where we see a steady increase in revenues over the last few years is Handset sales. Handset (Mobile) sales in the telecommunication industry refer to the selling of mobile phones, fixed-line devices, routers, etc. With the advent of smart gadgets, the range of devices extends to smartwatches, earphones, and headsets, and has led to the use of the broader term, Device Sales, to cover the growing range and diversity of products. One tier-1 operator in the developed market has recently reported that 22% of their revenue is from device sales in their recent financial report. While device sales contribute to telco revenues, fraudsters have quickly identified an opportunity to acquire high-value devices with almost zero upfront fees and no intention to pay in the future. This is resulting in significant fraud loss to telecom operators, and unlike traditional usage fraud, the loss in these cases can be calculated directly.
Let us look at some of the fraud methods used by fraudsters to commit device/handset fraud, especially for digital or web-based orders.
- Subscription Fraud by Identity Theft– In this method, fraudsters use a person’s real identity without their knowledge to buy goods or services with no intention to pay. Fraudsters use various methods to obtain identity information like social engineering, phishing, smishing, shoulder surfing, etc.
- Subscription Fraud by Falsifying Data – In this method, fraudsters create false/fake identity documents (synthetic ID) to purchase handsets/devices without any intention to pay.
- Account Takeover – In this method fraudsters, use the stolen details of a genuine customer using social engineering, phishing, or other techniques to take over or manipulate the customer account to order handsets/devices and
- Get them delivered to a different address and/or
- Change the contact number for delivery to his/her number and/or
- Update the details to choose pickup from a storage centre using a token number sent to the updated contact number.
- Payment Fraud – In this method, fraudsters use stolen credit or debit cards or, in some instances, counterfeit cards to order or purchase handset/devices.
- Credit Muling/Proxy Fraud – This method primarily involves collusion between a genuine individual using their own identity to buy goods or services and the fraudster. The individual buys the goods or services from the operator with no intention to pay and passes the goods or services to the fraudster. In some instances, there are financial arrangements between the fraudster and the individual, and in other cases, the individual complies due to threat or forceful intimidation.
In conjunction with the above-mentioned methods, fraudsters will also try and exploit any loopholes in the existing business processes to facilitate the fraud e.g. utilizing gaps in vetting processes to avoid advanced verification checks and/or manipulating courier delivery processes to change address details or simplify the interception of the device.
In recent years, we have seen a steep increase in the number of device fraud cases with organized fraud- rings playing a significant role in these crimes. For example, in June 2019, members of a US-based fraud-gang were indicted for their part in a $19 million fraud related to stolen phones and devices. Another case from the UK saw a group of 7 people arrested for their role in a £2 Million mobile phone fraud, targeting the student community. These examples are part of a wider trend with the CFCA survey estimating that telcos are incurring fraud losses of $3.25 billion due to theft and device reselling. In addition to the fraud loss, account takeovers, and identity theft impact the telco customer experience, leading to customer churn, negatively impacting the telco brand image.
In summary, revenue from handset/device sales is increasing and is an essential contributor to operators’ overall revenue. Due to this, it is a business imperative that telcos have robust business processes and intelligent systems in place to prevent handset fraud without impacting the onboarding or upgrade processes for genuine subscribers.
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Nishanth S Shetty is a Principal Consultant- Business Solution and Consulting Group at Subex with close to 10 years of experience. He joined Subex as a System Analyst and grew into the role of senior implementation engineer and then SME for Fraud Management. He has vast experience of designing and implementing Fraud Management solution across geographies including APAC, Middle East and Europe for both Retail and Wholesale operators. Nishanth holds a Master’s degree from Technical University of Eindhoven, Netherlands. He is currently based out of the Netherlands