How to Prevent and Manage Cyber-based Payment Fraud by 2023
The risk of payment fraud is a part of every business. An effective payment method is a boon to business as it gives customers a satisfaction and trust which encourages them return to your store. If you choose a poor payment option, it could cause a lot of damage to your company: today there is a lot of fraud. However, a robust platform for payments can help you reduce those risks, protect your clients and keep your business secure. The best part is that an extensive platform can help merchants combat fraud with a minimum of trouble or fuss.
What is payment fraud?
The risk of fraud is present in every transaction where the cardholder was not the one to authorize the transaction. The most fraudulent transactions are usually done using stolen credit card data, which is a type of identity theft. Fraud often results in financial or property loss by either the consumer or merchant or both.
Fraud could manifest itself via a myriad of means such as stolen credit card data or stolen information from a bank account, phishing, triangulation. The results of these in dispute over payment (also known as chargebacks) and are costly and cause issues to any company. Fraud tactics are varied and are likely to continue evolving as our defense mechanisms improve. In this post we'll discuss different kinds of credit card payment fraud.
Payment fraud attempts are increasing
In The State of Online Fraud report by Stripe the researchers discovered that the volume of fraud has grown substantially since the start of Covid 19 pandemic: 64 percent of business executives around the world claimed that it's become harder for their businesses to combat fraud. 40% of companies saw the increase in attempts at tests compared to prior year.
The losses from online payments are expected to surpass $343 billion between 2023 and 2027 according to Juniper Research. There is no question of if your company will be being targeted however, it's a matter of the time it will be. Facing inevitable adversity it is best to safeguard your business by implementing robust fraud prevention methods.
What's the reason for this rise in fraud? Growth in ecommerce.
Stripe discovered that by 2021, businesses using their platform processed 60% more payment amount than in the year 2020. This increased volume of transactions opened up more avenues to commit fraudulent transactions.
Payment fraud is a common type
Card testing, carding or other attacks
If a card is tested is a crime, the perpetrator attempts to make small purchases with stolen credit card details in order to test if the number works, often many times, using various credit cards. It allows criminals to swiftly verify whether the stolen data they have can be used to make larger purchases. This is typically the case whenever card details are purchased through malicious individuals after a breach of data.
Purchases for testing cards are typically originated from foreign countries using billing and delivery addresses that don't match the address of the user's IP address.
The decision to decline or even refund suspicious transactions is a good way to stop this kind of fraud. The fraudulent charges will be challenged and reversed if they're not returned.
Stolen credit cards
A stolen card payment fraud is when a customer makes a real purchase using stolen credit card details. In this instance, the address of delivery and billing could be completely different due to the fact that the fraudster wants the product delivered to them rather than to the card holder.
This kind of fraud could be difficult to identify due to the many possible reasons that a buyer may require a different address such as travel or being far from their home. In the event of suspicious circumstances purchases, it is possible to require an examination by a manual person to determine if the transaction is suitable for your organization and buyer type.
What are the risk factors of payment fraud?
Revenue loss and loss of trust top the list for payment fraud risks, but the business impact of fraudulent actions can also have more harsh penalties: Large fines due to violating regulations or even being removed from business.
Revenue loss from disputes over payment
Carts abandoned due to the prevention of fraud
Stripe found that "the more fraudulent activity a company is able to block it is, the more likely they are to prevent legitimate purchases in addition to reducing their payment conversion rates." The preventative measures could sometimes get in the way when customers make a purchase.
If there are many verification steps, or if you take customers to a popup or a different site where they have to input their credit card information They may be dissatisfied and drop their order.
Merchants are responsible in the event of fraud
Merchants are responsible for the transactions on their websites as well as in their shops. They must decide when they should accept or reject any suspicious transactions.
The charges that result from fraud will often be disputed or retracted, and incur a fee as a result. You can prevent these fees by denying and reimbursing the suspicious transactions. However, it's important to respond to disputes regarding chargebacks for legitimate charges by proving that there wasn't any fraud took place.
Five methods to prevent payment fraud
Each of these five strategies are tools or services which can be developed in house or purchased through a third-party. Risk management in-house may be the ideal choice for businesses that have enough resources and purchased tools may help simplify the management of transactions for small, busy teams.
Integrate fraud prevention tools
Software designed to set thresholds for fraud will hold or prevent high-risk purchases that fit your set requirements. Tools for fraud thresholds will stop any payment that appears unusual or is suspicious due to specifics like the location of an IP or an unusual customer profile.
An in-house solution can take a lot of time and resources to develop however, it could be a good choice for companies who require extensive customization, as well as those who handle sensitive data. Third-party solutions are quicker to set up, but it could be charged per transaction.
Understanding the sensitivity and scope of your risk for fraud can aid in determining which kind of software is appropriate for your organization.
Hire fraud and risk management teams
A person or a group for review of transactions is an established practice in manually preventing fraud. Transactions that are flagged for fraud can be inspected and approved or declined according to the rules and guidelines set in place by your company or your payment supplier. Manual approvals of high-risk or more expensive transactions could assist in minimizing your costs as well as losses from fraudulent transactions.
Items that look suspicious must be rescinded or reimbursed. Disputs must always be attended with evidence to provide or even accepted when there is fraudulent. There are many disputes that can be settled with evidence that is solid which eliminates the fee, and keeping the revenue. Examples of strong evidence could be a tracking number, screenshot of the delivery, interactions with the customer or evidence of use. The types of evidence you can use depend on the nature of your business but providing proof of receipt or usage provides a strong basis for dispute resolution.
Develop fraud prevention processes
The processes for preventing and responding to fraud are different for each company. It's best to begin by conducting a risk assessment, which will help you or your staff to determine what your average customer appears like, what kinds of fraud your business is at risk for, and the ways that fraudsters could find ways to circumvent your existing fraud prevention tactics.
Make use of the results from your risk assessment to revise your criteria for thresholds of fraud as well as the fraud response procedures.
Adopt an all-in-one payment solution
Small and medium-sized firms, an all-in one solution can be the best option for your money as well as your working hours.
What should you look for in an all-in-one payment system
Machine learning
The models of Machine Learning are educated to make decisions by feeding massive amounts of relevant existing output and input data. With given inputs, a model determines the probability of each given output. It then uses this probability to make decisions in the fraud evaluation of every transactions.
Rules that can be customized and risk-filtered
Custom risk filtering allows firms to define the thresholds for risk tolerance that identify suspicious transactions if they satisfy certain requirements. They can be adjusted to meet your business needs. Filters can be set for various factors like:
- Authorized IP addresses from certain server or region
- Blocked IP addresses are known to be associated with fraudulent activity
- Multiple transactions, rapid and frequent at the same IP address
- Verification of shipping address
- Transaction amount or volume
Customizable rules give flexibility to various business models. If a clothes retailer could flag large-scale purchases, a construction wholesaler might concentrate on billing and shipping data.