How can you prevent and manage Online Payment Fraud in 2023
The threat of fraud in payment is inherent in any business. A great payment solution will benefit businesses: it provides customers with satisfaction and trust, and encourages them to purchase from you in the future. A terrible payment solution can cause a lot of damage to your company: today, we're talking about fraud. However, a robust platform to process payments will help reduce risk, shield your clients and ensure your company's security. Best of all, a comprehensive platform helps merchants combat fraud with a minimum of effort or hassle.
What is payment fraud?
Fraudulent payment occurs when there is a transaction where the cardholder was not the one to authorize the transaction. The most fraudulent transactions are usually done using stolen credit card details and are a kind that is known as identity theft. The result of fraud is usually the loss of property or financial assets by the merchant, consumer, or both.
Fraud could manifest itself via a myriad of means including stolen credit card details, stolen account information, phishing, triangulation. The results of this in disputes with payment providers (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 piece, we'll cover different types of fraud involving credit cards.
Payment fraud attempts are increasing
In the State of Online Fraud report from Stripe Researchers found that fraud volumes have increased significantly since the onset in the Covid 19 pandemic: 64 percent of the global leaders in business said that it has become more difficult for them to fight fraud, and 40% of businesses reported an increase in attempted test attacks as compared with previous times.
Payment losses from online transactions are predicted to surpass $343 billion between 2023 and 2027, as per Juniper Research. There is no question of if your company will be targeted, but the time it will be. Facing inevitable adversity it is best to defend your business with effective fraud prevention strategies.
What's causing this increase in fraud? Ecommerce growth.
Stripe found that in 2021, companies that use their platform handled 60% more in payment quantity than they did in 2020. This increased volume of transactions opened up more avenues for fraudulent transactions.
Common types of payment fraud
Card testing and carding attack
In the course of testing cards, a bad actor attempts to purchase items with stolen credit card information to see if the card number is working, usually many times with many different card. The fraudsters can quickly determine if the information they have can be used for larger transactions. Card testing typically happens when the card information is bought by criminals in the aftermath of a data breach.
Purchases for testing cards are typically originated from foreign countries that has billing and delivery addresses that do not match the customer's IP address location.
Declining or refunding suspicious transactions can help prevent the fraud that occurs with these types of transactions. Charges that are fraudulent will be disputed and reversed if they're not returned.
Stolen credit cards
The fraud of a stolen credit card happens when consumers make an actual purchase using stolen credit card information. In this case, the billing and delivery addresses may be completely different since the fraudster would like the product delivered to them and not the cardholder.
The frauds of this kind can be hard to spot because there are lots of motives why customers might require different addresses such as travel or being far from their home. For suspicious cases the purchase might require manually reviewed to see if the purchase looks right for your organization and buyer type.
What are the risks from fraud on payment?
The loss of revenue as well as the loss of customer trust are top of the list when it comes to risk of fraud in the payment industry, however the business impact of fraudulent activity also includes much harsher penalties: Large fines due to violating regulations or even being removed from business.
The loss of revenue resulting from payments disputes
Abandoned carts due to fraudulent prevention
Stripe observed that "the more fraud a business tries to prevent it is, the more likely they are to prevent legitimate purchases and also reduce the conversion rate of their payments." Prevention measures may sometimes get in the way when customers make a purchase.
If there are numerous verification steps or you send your customers to an pop-up or a different site where they have to input their credit card information, they may become annoyed and stop buying.
Merchants are responsible in the event of the case of fraudulent transactions
Merchants are responsible for the transactions that occur through their sites and their stores. They must decide when to approve or deny an unreliable transaction.
The charges that result from fraud are often contested and reversed, and will result in a charge as a result. This can be avoided by declining and refunding suspicious transactions. In addition it is crucial to react to disputes regarding chargebacks with legitimate charges by proving that there wasn't any fraud took place.
Five methods to prevent payment fraud
Five of the techniques are a set of tools or solutions which are built by the company or purchased from a third party. In-house risk management may be the ideal solution for larger-scale companies with enough resources and purchased tools may help simplify the management of transactions for small and busy teams.
Integrate fraud prevention tools
Software designed to set thresholds for fraud will block high-risk purchases that fit your set requirements. Tools for fraud thresholds will stop the purchase that is not typical or raises red flags based on specifics like the location of an IP or an unusual profile of the customer.
An in-house solution can take a lot of time and effort to design, but may be a good choice for companies who require extensive customization, or those that deal with sensitive data. A third-party solution is faster to deploy, but may have a fee per transaction.
Identifying the scope and sensitivity of your fraud risk can help you decide which type of software is appropriate for your business.
Risk management and hiring fraud teams
Designating a person or team to review transactions is commonplace for the prevention of fraud using manual methods. The transactions that have been flagged can be reviewed and subsequently approved or rejected in accordance with the guidelines and rules established by your business, or by your service supplier. Manual approvals for higher-risk or higher-value transactions can aid in reducing your expenses and losses due to fraud.
Items that look suspicious are not to be accepted or returned. Disputes should always be responded with proof to support them or accepted in the event that there is fraudulent. There are many disputes that can be settled by providing evidence which eliminates the fee, and keeping the revenue. Examples of strong evidence could be a tracking number or a screenshot of delivery, interactions with the customer or evidence of use. Evidence that can be used is contingent upon your company's nature, but providing any evidence of use or receipt can be a solid base for establishing a dispute-free environment.
Develop fraud prevention processes
Fraud prevention and response processes differ for every firm. It's best to begin by conducting an assessment of risk that will assist you or your team determine what your average customer appears like, what kinds of fraud your company could be susceptible to, and the ways that fraudsters could find ways through your fraud protection methods.
Make use of the results from your risk assessment to update your fraud threshold criteria and the fraud response procedures.
Choose a one-stop payment system
For small and medium sized firms, an all-in one solution is the ideal choice for both your budget and your time.
What are the things to search for in a complete payment solution
Machine learning
Models of machine learning are educated for decision-making by being fed enormous amounts of relevant data on output and input. Given inputs, the model determines the probability of a given output. It then uses this probability to make decisions in its fraud assessment of each operation.
Risk filters and customizable rules
Custom risk filters allow businesses to set the thresholds for risk tolerance that flag suspicious transactions when they satisfy certain requirements. They can be adjusted to meet your business needs. Filters can be set for a variety of factors, like:
- The IP addresses are authorized by particular servers or from specific regions
- Blocked IP addresses known for fraudulent activity
- Multiple transactions, rapid and frequent at the same IP address
- Address verification for shipping
- The amount or the volume of transactions
Customizable rules give flexibility to various business models. While a retailer of clothing may flag purchases that are too large or a construction wholesaler may concentrate on billing and shipping data.