How can you prevent and manage Online Payment Fraud in 2023
The threat of fraud in payment is part of any company. A great payment solution can be a huge benefit to businesses because it offers customers an enjoyable, reliable experience as well as entices them to return to your store. If you choose a poor payment option, it could cause a lot of damage to your company: today, we're talking about fraud. But, a comprehensive payment platform can mitigate those dangers, safeguard your customers, and keep your business secure. Most importantly, a comprehensive platform helps merchants combat fraud with a minimum of effort or hassle.
What is a payment fraud?
The risk of fraud is present in every transaction where the cardholder did not authorize the payment. In most cases, fraudulent payments are done using stolen credit card details, which is a type that is known as identity theft. It is common for fraud to result in financial or property loss by consumers, the seller, or both.
Fraud can manifest in a number of ways such as stolen credit card data, stolen account information and phishing. We see the results of these in dispute over payment (also known as chargebacks) that are expensive and could cause problems to any company. Fraud tactics are varied and continue to change as we improve our security mechanisms. In this post we'll discuss different kinds of fraudulent use of credit cards.
The number of attempts to commit fraud with payment is increasing.
In the State of Online Fraud report from Stripe the researchers discovered that fraud volumes have increased substantially since the start of the Covid 19 pandemic: 64 percent of business executives around the world said that it has become harder for their businesses to fight fraud, and 40% of businesses reported an increase in attempted tests compared to prior times.
The losses from online payments are expected to reach $343 billion worldwide between 2023 and 2027 according to Juniper Research. There is no question of whether your business is targeted, but when. Facing inevitable adversity, the best option is to defend your business with effective fraud prevention strategies.
What's the reason for this rise in fraud? The growth of e-commerce.
Stripe observed that, in 2021, organizations who use their platform made 60% more in payment amount than in the year 2020. This growth offered more opportunities to commit fraudulent transactions.
The most common types of fraud in the payment industry
Card testing or carding attacks
When card testing is a crime, the perpetrator attempts to purchase items with stolen credit card numbers in order to test if the number works, often many times with many different credit cards. The fraudsters can quickly determine if the information is able to be utilized to make larger purchases. Card testing typically happens when the card information is bought by malicious actors following a data breach.
Card testing purchases are often purchased from an overseas country with delivery and billing addresses that are not in line with the customer's IP address location.
Refunding or denying suspicious transactions can help prevent this kind of fraud. Fraudulent charges can be challenged and reversed if they're not reimbursed.
Stolen credit cards
A fraudulent use of stolen cards is when a customer makes an actual purchase using stolen credit card details. If this is the case, billing and delivery addresses may differ because the fraudulent purchaser wants the product delivered to them rather than to the card holder.
This kind of fraud could be difficult to detect due to the many possible reasons that a buyer could require multiple addresses, like travel or living in a different location. In the event of suspicious circumstances the purchase might require an examination by a manual person to determine if the transaction is suitable for your organization and customer type.
What are the risk factors of payment fraud?
Revenue loss and loss of confidence are the top two concerns for security concerns with payment fraud, but the business impact of fraudulent activities can have much more severe consequences: Significant fines for the violation of regulations and even getting removed from business.
Revenue loss from disputes over payment
Abandoned carts due to the prevention of fraud
Stripe observed that "the more fraudulent activity a company tries to prevent, the more likely they are to block legitimate charges as well -- reducing their payment conversion rates." Prevention measures may often hinder of customers making a purchase.
If there are many verification steps, or if you take your customers to an pop-up or a different site where they have to input the details of their credit card customers may get dissatisfied and drop their order.
The merchant is responsible for fraud
Merchants are accountable for transactions they make on their websites and in their shops. This includes deciding when to approve or deny any suspicious transactions.
The charges that result from fraud are often contested and reversed, and will be charged as a result. It is possible to avoid these charges by denying and reimbursing suspicious transactions. In addition, it's important to respond to chargeback disputes with legitimate charges by providing evidence that no fraud occurred.
Five ways to reduce the risk of payment fraud
The five techniques are a set of tools or solutions that can be built by the company or purchased by a third-party. Risk management in-house may be the best option for large-scale businesses with sufficient resources, while purchased tools can help simplify the management of transactions for small, busy teams.
Integrate fraud prevention tools
Software that sets fraud thresholds will block high-risk transactions that meet your criteria. The tools for detecting fraud will block the purchase that is not typical or alerts you to red flags due to information such as IP address or an unusual customer profile.
In-house solutions can require long and money to create, but may be an ideal choice for businesses that require a lot of customization or those that deal with sensitive data. Third-party solutions are quicker to deploy, but may be charged per transaction.
The scope and sensitivity of your risk for fraud can help you decide which type of software is appropriate for your business.
Risk management and hiring fraud teams
The selection of a team or individual for review of transactions is an established practice in manually preventing fraud. The transactions that have been flagged can be reviewed and subsequently approved or rejected according to the rules and guidelines set in place by your company or payment supplier. Manual approvals for high-risk or high-value transactions may aid in reducing your expenses and losses due to fraud.
Items that look suspicious are not to be accepted or returned. Disputs must always be attended by providing evidence available or even accepted when they're fraud. A lot of disputes can be resolved by providing evidence to eliminate a charge and retaining the money. Some examples of evidence that is strong include a tracking ID and a photo of the delivery, the interaction with the customer and proof of use. Evidence that can be used is contingent upon the type of business you operate and the nature of your business, however providing evidence of receipt or usage is a good foundation for dispute protection.
Develop fraud prevention processes
Fraud prevention and response processes will look different for every company. It is helpful to begin with risk assessments that will assist you or your staff to understand what your typical customer looks like, what types of fraud your company could be vulnerable to, as well as what ways fraudsters can work around your current fraud prevention tactics.
Make use of the results from the risk assessment you have conducted to modify your criteria for thresholds of fraud as well as procedures for responding to fraud.
Choose a one-stop payment system
for medium and small companies, an all-in-one system is the ideal choice for both your budget and your time.
What should you look for in an integrated payments solution
Machine learning
Machine learning models are educated to make decisions using enormous amounts of relevant output and input data. With given inputs, a model estimates the probabilities of each output. It uses that probability to make decisions in its fraud assessment of each operation.
Customized risk filters and rules
Custom risk filters allow companies to establish the thresholds for risk tolerance that identify suspicious transactions if they match certain standards. These thresholds can be tuned to suit your specific business requirements. Filters are set to meet a variety of factors, such as:
- The IP addresses are authorized by particular servers or regions
- Blocked IP addresses known for fraud
- Reliable, frequent transactions coming at the same IP address
- Address verification for shipping
- The amount or the volume of transactions
Customizable rules give flexibility to different business types. While a retailer of clothing could flag large-scale purchases, a construction wholesaler might concentrate on billing and shipping data.