Fraud Starts to Take a Bite Out of Apple Pay

It didn’t take long for fraud to find its way to Apple Pay.

Some banks are witnessing a growing incidence of fraud on Apple Inc.’s mobile-payment service as criminals exploit vulnerabilities in the verification process banks follow when users add a credit card to the service, according to people familiar with the matter.

Banks are tightening this process in an attempt to curb the fraud, these people said.

The problem was brought to light in late February in a blog post by Cherian Abraham, a payments expert who works with banks and retailers on mobile-payment strategies. He said fraud “is growing like a weed, and the bank is unable to tell friend from foe.”

Mr. Abraham said it isn’t “an anomaly” for fraud to account for about 6% of Apple Pay transactions, compared with about 0.1% on transactions that involve swiping a credit card.

He said that fraud rates on credit cards vary, depending on the bank that issued them.

Mr. Abraham is an adviser to SimplyTapp, which provides the host-card-emulation technology for contactless payments on devices using Google Inc.’s Android operating system. Those payment systems compete with Apple Pay.

Mr. Abraham said other mobile-payment services might be exposed to the same fraud problem, “irrespective of origin, scale, intent or patron saint.”

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