Smartphone Theft Consortium Falls Short

  • Fraud Prevention, Identity Fraud

News rocked the wireless world this week when the big four wireless carriers agreed to share phone data to prevent stolen phones from being used with other carriers. As those on the inside are well aware, its a highly competitive market and getting any carrier to share any information with another is monumental. Flip phones 10 years ago morphed into todays Smartphones that literally rule our lives, which reflect that value in cost. Having spent a chunk of my career in wireless, including working with the first Blackberry (I miss the 957), and later working for and with the industrys largest cellular insurance providers, Ive witnessed firsthand the rise in fraud surrounding cellular and the lucrative black market thats emerged. Insurance companies have pushed carriers for years to share data and create blacklists for stolen or fraudulently acquired phones. The insurance carriers have incentive to prevent fraudulent claims, but the same economic drivers dont apply to carriers.

Carriers heavily subsidize the price of a device and recoup their cost in monthly fees. Lets be honest, the most profitable customer a carrier can have is an unsubsidized phone from another carrier and a long-term contract. Profit margins skyrocket when youre not subsidizing the latest gadget by $400. Mysteriously missing from the consortium news are the tier 2 providers, like Cricket and Metro PCS. The few remaining tier 2 providers cater to prepaid and subprime customers, who may be more likely to buy a black market device. And what about international carriers? The consortium fails to address the entire problem.

Coincidentally weve been recently working with a Sprint wireless agent to help prevent fraud at the point of sale. This agent runs a small business with 18 stores in one state. In a normal sale with a new customer he purchases Smartphones from the carrier for $700, sells one to the customer for the subsidized price (say $300 for our example), then is cut a check back from the carrier for $400 (carrier subsidy) when the client pays the first bill. Hes having a rash of people using fake IDs to establish the account and never pay for service, and then selling the phone on the black-market for more than the subsidized price. Sprint will blacklist the phone, but other carriers will gladly accept service while our agent client is out $400. Weve given him a cheap and effective tool with KBA to verify and authenticate his customers while preventing fraud and chargebacks. While the consortium is a great tool to help eliminate fraud from stolen devices, we believe Identity Verification is the answer to prevent fraud at the POS.

[Contributed by Jeff Davis, President & CEO]