Mobile Virtual Network Operators, commonly known as MVNOs, work with slim profit margins. Company leaders often emphasize the importance of managing customer acquisition costs, minimizing churn rates, and stopping network fraud schemes that can result in things like elder abuse. Those are all important. But, the often overlooked threat of payments fraud can have an outsized impact on MVNO financials.

Payments may be flagged for fraud unnecessarily and never processed. They may be blocked due risk flags by the acquiring bank. They may fail due to insufficient funds (NSF). Or, they may succeed only to be reversed because of fraud and chargebacks. 

Failed payments undermine profitability in ways that MVNOs may not fully realize. To safeguard financial health and ensure the success of their businesses, it’s crucial for MVNOs to gain a solid understanding of the various areas of revenue leakage that can occur. By identifying and acknowledging these areas, they can take proactive measures to protect their bottom lines and free up resources to invest in growth.

The Fraud Landscape for MVNOs

MVNOs face unique vulnerability to many types of fraud in digital channels. Consumers can sign up and get a high-value handset with very little money down. Prepaid service can be used for expensive roaming or international calls. This combination is attractive for fraudsters targeting both customer acquisition and ongoing transactions.

1. Subscription Fraud: The Day-One Threat

Subscription fraud refers to the situation where individuals enroll in services using either stolen identities or synthetic identities—essentially, fake identities that have been created to deceive—without any intention of fulfilling their financial obligations. This form of fraud poses significant risks and challenges to Mobile Virtual Network Operators (MVNOs) on various levels, each one compounding the impact of fraudulent activity:

• Immediate Costs: When fraudulent accounts are created, MVNOs often invest money into device subsidies, SIM cards, and activation resources for these accounts. This investment is essentially wasted when the individuals behind the fraudulent accounts do not pay for the services they have enrolled in, leading to a direct financial loss for the companies involved.
• Downstream Losses: Beyond the initial costs, MVNOs face additional financial ramifications from unpaid service usage. This includes both voice services and data consumption that the fraudulent account holders utilize without ever settling their bills, contributing to further losses.
• Operational Waste: The resources deployed in attempts to collect payments from these fraudulent accounts end up being wasted. MVNOs often allocate time and manpower to collection activities that yield no returns, only exacerbating their financial issues.
• Regulatory Exposure: There are also broader implications associated with subscription fraud, particularly regarding compliance with regulations. Insufficient Know Your Customer (KYC) processes can expose MVNOs to potential legal issues, as they may not be adequately verifying the identities of their customers, which could lead to significant regulatory penalties.

According to industry data, subscription fraud constitutes a staggering 30-40% of total fraud losses experienced by many MVNOs. On average, the financial loss incurred per fraudulent account varies widely, estimated to be between $500 and $1,200 when one takes into account all related costs involved.

2. Payment Method Manipulation

This particular type of advanced fraud involves taking advantage of weaknesses or vulnerabilities found within payment processing systems through a variety of methods that are specifically designed to manipulate transactions. These methods include the following:

• Card Testing: This technique involves using the payment system of a Mobile Virtual Network Operator (MVNO) to experiment with stolen credit or debit cards. The purpose of this is to identify which cards are active and can be used for more significant fraudulent purchases at other retailers or service providers afterward.
• Card Cycling: This method entails the rapid and frequent switching between different payment methods in quick succession. By doing this, fraudsters aim to evade detection and make the most out of fraudulent activities before the payment system marks the cards as invalid or declines them due to suspicious activity.
• Friendly Fraud: In this scenario, individuals who are legitimate customers go ahead and make purchases, but later they falsely dispute the charges with their bank or payment processor. They may claim that they did not authorize the transaction or that the product or service was not received, which results in a chargeback against the merchant.

The practices described here have a significant and dual financial impact on businesses. Firstly, there is the direct loss of revenue as a result of these fraudulent activities. Secondly, businesses often face increased payment processing fees since payment processors tend to charge higher rates to companies that experience a higher volume of chargebacks. This can strain the financial health of the business over time.

3. Promotion and Incentive Abuse

The competitive promotions and incentives provided by Mobile Virtual Network Operators (MVNOs) generate additional opportunities for fraudsters to exploit.

• Serial Promotion Abuse: This occurs when individuals systematically create multiple accounts with the intention of claiming promotional offers that are available exclusively for new customers, repeatedly benefiting from these incentives.
• Synthetic Identity Scaling: This practice involves the use of numerous fabricated identities, which fraudsters create in order to take advantage of promotional offers on a much larger scale, thereby maximizing their gains while minimizing their risk of detection.
• Referral Program Manipulation: Some individuals engage in the creation of fictitious referrals in order to collect bonuses and rewards that are typically offered to customers who successfully refer others, all while failing to generate any legitimate business or customer interactions.

In one notable instance, a Mobile Virtual Network Operator uncovered that an alarming 18% of its promotional sign-ups were found to be fraudulent. This shocking statistic translated to a substantial financial loss, equating to a waste of $1.5 million from its quarterly marketing budget.

The Compounding Financial Impact

Fraud poses a significant threat to Mobile Virtual Network Operators (MVNOs), primarily due to the way it worsens their already narrow profit margins. To illustrate just how severe this issue can be, consider an MVNO that operates with a net profit margin of only 6%. If this company experiences a 5% revenue leakage due to failed payments and fraud, the impact on its profitability is drastic. Specifically, this leads to a staggering 83% reduction in actual profitability. This means that for every $10 million generated in revenue, the MVNO ends up facing a loss of $500,000 that could have been easily prevented had effective fraud measures been in place. Additionally, the operational costs incurred from managing fraud add even more pressure on these already strained margins, further diminishing profitability by an extra 1% to 2%.

Introducing Vesta: The Revenue Orchestration Solution

To combat these challenges faced by MVNOs, Vesta presents a comprehensive revenue orchestration platform specifically designed to address issues related to payment fraud. This platform employs a multi-layered approach that is aimed at mitigating risks while helping these companies sustain their revenue.

1. Identity Verification Intelligence At the core of Vesta’s solution is its advanced identity verification technology, which is capable of evaluating an impressive number of over 2,000 risk signals in just milliseconds. This quick analysis allows for the immediate identification and prevention of subscription fraud at its very source, all while ensuring that the customer experience is smooth and free from unnecessary hurdles. By examining various factors such as device characteristics, user behavior patterns, and key identity markers, Vesta effectively detects both synthetic identities and stolen identities before they can infiltrate the customer base.

2. Payment Optimization Engine Vesta’s platform does not solely focus on fraud prevention; it also enhances payment acceptance rates actively. Through the utilization of machine learning models, Vesta can accurately differentiate between legitimate transactions and fraudulent ones, achieving an unprecedented level of precision. This dual functionality serves not only to lower fraud-related losses but also to boost revenue by facilitating a higher acceptance rate for valid payment transactions.

3. Fraud Guarantee Protection Setting itself apart from competitors in the industry, Vesta provides a unique offering: a 100% fraud chargeback guarantee. This innovative feature effectively transfers the financial burden of fraud away from MVNOs, transforming the expense of fraud prevention into an investment that secures revenue protection instead of merely being a cost center.

Real-World Financial Impact

Mobile Virtual Network Operators (MVNOs) that choose to implement Vesta’s innovative revenue orchestration platform usually see significant and positive changes in their financial landscape. Specifically, they often benefit from an immediate revenue recovery that ranges between 5% to 7% as they effectively eliminate instances of fraud. Moreover, they can achieve a remarkable reduction in the operational costs that are typically linked to fraud management, with decreases in this area falling between 40% and 60%.

In addition to these benefits, MVNOs can also observe notable improvements in their payment acceptance rates for legitimate transactions, which can increase by 15% to 20%. Furthermore, implementing this platform leads to the complete removal of chargeback liability, as well as the associated management costs that come with handling such issues.

When considering these advantages in a practical context, take, for example, an MVNO that generates about $50 million in annual revenue. The financial improvements realized from Vesta’s platform would equate to an increase in their bottom-line performance of between $2.5 million to $3.5 million. This transformation represents a substantial enhancement of their overall financial health and success.

Conclusion: From Vulnerability to Security

Payment fraud is not merely a nuisance that affects the day-to-day operations of Mobile Virtual Network Operators (MVNOs); it represents a serious financial threat that could jeopardize their long-term viability and growth prospects. As the methods employed by fraudsters become more advanced and intricate, simply reacting to incidents of fraud is no longer a viable solution. MVNOs must adopt a proactive stance to protect their finances and maintain their competitive edge.

Vesta’s revenue orchestration platform provides MVNOs with the robust protection they need to turn the financial losses incurred from fraud into profitable opportunities. This platform not only enhances financial stability but also allows MVNOs to concentrate on their primary goal, which is to grow their business. In an industry where profit margins are critical for survival, choosing to partner with Vesta is not just a choice about enhancing security; it is an essential strategy for maintaining and expanding their business capabilities.

Request A Demo

Don’t let payment fraud erode your hard-earned margins. Discover how our cutting-edge revenue orchestration platform can protect your revenue and boost your bottom line. Request your free demo today!