How do you stop and control Online Payment Fraud in 2023
The risk of payment fraud is part of any company. The right payment system can be a huge benefit to businesses because it offers customers satisfaction and trust as well as entices them to purchase from you in the future. An unprofessional payment system can sink your ship: today there is a lot of fraud. However, a robust payment platform can mitigate those risk, shield your clients and ensure your company's security. Best of all, the most comprehensive payment platform allows merchants to deal with fraud, without any amount of trouble or fuss.
What is payment fraud?
Payment fraud occurs in any purchase where the person who made it was not the one to authorize the transaction. Fraudulent payments are often done using stolen credit card data and are a kind of identity theft. The result of fraud is usually the loss of property or financial assets by consumers, the seller, or both.
Fraud could manifest itself through a variety of methods such as stolen credit card data as well as stolen account details such as phishing, triangulation. The results of it in payment disputes (also called chargebacks) that are expensive and cause issues for businesses of all sizes. There are a variety of fraud strategies and will continue to evolve when our defense systems improve. In this article we'll discuss different kinds of credit card payment fraud.
The number of attempts to commit fraud with payment is increasing.
In The State of Online Fraud report from Stripe the researchers discovered that the volume of fraud has grown substantially since the start of the Covid 19 pandemic: 64% of global business leaders claimed that it's become harder for their businesses to fight fraud, and 40% more businesses saw an increase in attempted card testing attacks compared to previous years.
The losses from online payments are expected to exceed $343 billion globally between 2023 and 2027, as per Juniper Research. It's not about the likelihood that your company will be at risk, but the time it will be. Facing inevitable adversity it is best to defend your business with robust fraud prevention methods.
What's causing this increase in fraud? The growth of e-commerce.
Stripe observed that, in 2021, businesses who use their platform made 60% more payment quantity than they did in 2020. The growth in transactions created more possibilities to commit fraud.
The most common types of fraud in the payment industry
Card testing, carding or other attacks
If a card is tested, a bad actor attempts to make small purchases with stolen credit card numbers in order to test if the number is working, usually many times, using various card. This allows fraudsters to quickly verify whether the stolen data they have can be used for larger transactions. This is typically the case when the card information is bought through malicious individuals after a breach of data.
The majority of purchases for card testing are purchased from an overseas country using billing and delivery addresses that are not in line with the location of the IP address used by the client.
Declining or refunding suspicious transactions is a good way to stop this type of payment fraud. Fraudulent charges can be disputed and reversed if they're not reimbursed.
Stolen credit cards
The fraud of a stolen credit card is when a customer makes an actual purchase using stolen credit card information. If this is the case, billing and delivery addresses may differ completely because the fraudulent purchaser wants their product delivered rather than to the card holder.
This kind of fraud could be difficult to detect due to the many possible reasons that a buyer might require different addresses for example, travel or living in a different location. In the event of suspicious circumstances the purchase might require manual review for whether it is appropriate for your organization and buyer type.
What are the risks of fraud in the payment industry?
Revenue loss and loss of confidence are the top two concerns for payment fraud risks, but the impact on business from fraudulent activities can have much more severe penalties: Large fines due to the violation of regulations and even getting shut down.
Lost revenue from payment disputes
Abandoned carts due to fraudulent prevention
Stripe found that "the more fraud a business is able to block and prevent, the more likely they will be to stop legitimate transactions as well -- reducing the rate of conversion for payments." Preventative measures can occasionally hinder the process the purchase of a customer.
If there are too many verification steps, or when you direct users to a pop-up or other site for them to input their credit card information, they may become annoyed and stop buying.
Merchants are responsible in the event of fraud
Merchants are responsible for the transactions they make through their sites and their shops. This includes deciding when to approve or deny any suspicious transactions.
The charges that result from fraud will often be disputed or reversed and result in a charge in the process. This can be avoided by refusing to refund suspicious transactions. However you must respond to disputes regarding chargebacks with legitimate charges with proof that there was no fraud occurred.
Five methods to prevent payment fraud
Each of these five methods are either tools or services which can be developed by the company or purchased through a third-party. Internal risk management could be the ideal solution for larger-scale companies with the resources to support them as well as purchased tools could simplify transaction management for small and busy teams.
Integrate fraud prevention tools
Software that sets fraud thresholds can block or stop high risk transactions that meet your criteria. The tools for detecting fraud will block any payment that appears unusual or raises red flags based on data points like IP location or an unusual customer profile.
An in-house solution can take long and resources to develop however, it could be an ideal choice for businesses that require a lot of customization or those that deal with sensitive data. A third-party solution is faster to set up, but it could come with a per-transaction fee.
Identifying the scope and sensitivity of your risk for fraud can assist you in choosing the type of device is right for your organization.
Risk management and hiring fraud teams
Designating a person or team for review of transactions is an established practice in manually preventing fraud. Flagged transactions can be reviewed and subsequently approved or rejected in accordance with the guidelines and rules that are set by your organization or your payment provider. Manual approvals of high-risk or high-value transactions may help reduce your costs as well as losses from fraudulent transactions.
The purchases that appear to be fraudulent must be rescinded or reimbursed. Disputes should always be responded with evidence available or accepted in the event that there is fraud. A lot of disputes can be resolved with evidence that is solid, eliminating a fee and retaining the money. Evidence that can be used to prove the case include a tracking ID or a screenshot of delivery, the interaction with the customer, or proof of usage. Evidence that can be used is contingent upon your company's nature but providing proof of use or receipt can be a solid base for establishing a dispute-free environment.
Develop fraud prevention processes
Response and prevention strategies for fraud differ for every business. It's best to begin by conducting a risk assessment that will assist you or your staff to understand what your typical customer is like, the types of fraud your business is at risk for, and how fraudsters might find ways through your fraud protection tactics.
Utilize the findings of the risk assessment you have conducted to modify your fraud threshold criteria and fraud response processes.
Choose a one-stop payment system
for medium and small businesses, an all-in-one solution is the ideal choice to save money and your working hours.
What to look for in an integrated payment solution
Machine learning
Machine learning models are trained to make decisions using huge amounts of pertinent existing output and input data. Given inputs, the model determines the probability of each given output. The model then utilizes this likelihood to determine the fraud evaluation of every transaction.
Rules that can be customized and risk-filtered
Custom risk filtering allows businesses to set the thresholds for risk tolerance that identify suspicious transactions if they meet certain criteria. They can be adjusted to meet your business needs. Filters can be configured for many different factors like:
- Autorized IP addresses for certain servers or from specific regions
- Blocked IP addresses have been identified as being associated with fraud
- Rapid, repeated transactions using the same IP address.
- Address verification for shipping
- Transaction amount or volume
Flexible rules allow for different business types. If a clothes retailer may flag purchases that are too large, a construction wholesaler might be more concerned with billing and shipping information.