How do you stop and control the risk of fraud in online payments by 2023
Risk of fraud with payment is part of any enterprise. A great payment solution can be a huge benefit to businesses because it offers customers a positive, trustworthy 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. A comprehensive payment platform can mitigate those dangers, safeguard your customers, and keep your business secure. Most importantly, a comprehensive platform helps merchants manage fraud without a lot of trouble or fuss.
What is payment fraud?
Payment fraud occurs in any transaction where the cardholder was not the one to authorize the transaction. The most fraudulent transactions are usually made with stolen credit card data that is a form 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 can manifest via a myriad of means: stolen credit card information or stolen information from a bank account and phishing. The results of these in dispute over payment (also called chargebacks) that are expensive and cause issues for businesses of all sizes. The methods used to commit fraud are diverse and will continue to evolve 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 by Stripe, researchers found that fraud volumes have increased dramatically since the beginning in the Covid 19 pandemic: 64 percent of business executives around the world claimed that it's become difficult for businesses to combat fraud. 40% more businesses saw the increase in attempts at testing attacks compared to previous times.
Online payment losses are projected to exceed $343 billion globally between 2023-2027, in accordance with Juniper Research. There is no question of whether your business is targeted, but when. Facing inevitable adversity it is best to protect your company with strong fraud prevention techniques.
What's causing this increase in fraud? The growth of e-commerce.
Stripe observed that, in 2021, organizations who use their platform made 60% more payment quantity than they did in 2020. This growth offered more opportunities for fraud.
Common types of payment fraud
Card testing, carding or other attacks
When card testing, a bad actor attempts to make small purchases with stolen credit card numbers in order to test if the number works, often many times with many different credit cards. This allows fraudsters to quickly verify whether the stolen data could be used to make larger purchases. This is typically the case when card info is purchased by malicious actors after a breach of data.
Card testing purchases are often purchased from an overseas country using billing and delivery addresses that don't match the address of the user's IP address.
Declining or refunding suspicious transactions is a good way to stop this type of payment fraud. Charges that are fraudulent will be denied and reversed in the event that they're not returned.
Stolen credit cards
The fraud of a stolen credit card occurs when customers make an actual purchase with stolen credit card details. In this instance, the delivery and billing addresses could be completely different since the fraudster would like the product delivered to them rather than to the card holder.
This type of fraud can be difficult to identify since there are many possible reasons that a buyer might require different addresses, like travel or living away from home. If there are any suspicious situations, a purchase may need manually reviewed to see if the purchase looks right for your organization and customers.
What are the dangers of fraud in the payment industry?
Revenue loss and loss of trust are top of the list when it comes to payment fraud risks, but the business impact of fraudulent activity also includes much harsher repercussions: Major fines from breaking regulations, or being shut down.
Lost revenue from payment disputes
Abandoned carts due to fraudulent prevention
Stripe found that "the more fraud a business tries to prevent, the more likely they are to prevent legitimate purchases in addition to reducing the rate of conversion for payments." The preventative measures could sometimes get in the way the purchase of a customer.
If you have too many steps to verify, or when you direct your customers to an 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 the case of fraudulent transactions
Merchants are responsible for the transactions they make through their sites and their retail stores. This includes deciding when to accept or decline a suspicious transaction.
The fees that are incurred due to fraud will often be disputed or retracted, and incur a fee as a result. It is possible to avoid these charges by refusing to refund the suspicious transactions. In addition it is crucial to react to chargesback complaints for legitimate charges with proof that there was no fraud occurred.
Five strategies for reducing payment fraud
The five methods are either tools or services which can be developed by the company or purchased by a third-party. In-house risk management may be the ideal choice for businesses that have the resources to support them and purchased tools may help simplify the management of transactions for small and busy teams.
Integrate fraud prevention tools
Software that establishes thresholds for fraud will hold or prevent high-risk transactions that meet your criteria. Fraud threshold tools will hold a payment that looks atypical or raises red flags based on specifics like the location of an IP or a customer's profile that is unusual.
An in-house solution can take a lot of time and resources to develop, but may be a good choice for companies that require a lot of customization or that handle sensitive information. An external solution is quicker to implement, however it may be charged per transaction.
The scope and sensitivity of your fraud risk can help you decide which type of tool is best for your business.
Team members for hiring fraud and risk management teams
A person or a group for review of transactions is a common practice for the prevention of fraud using manual methods. Flagged transactions can be reviewed and approved or declined according to the rules and guidelines that are set by your company or payment supplier. Manual approvals of high-risk or more expensive transactions could help reduce your costs or losses due to fraudulent transactions.
Items that look suspicious should be rejected or refunded. Disputes should always be responded to when there is proof to support them or even accepted when they are fraudulent. There are many disputes that can be settled by providing evidence, eliminating a fee and retaining the money. Examples of strong evidence include a tracking ID or a screenshot of delivery, interactions with the customer, or proof of usage. Evidence that can be used is contingent upon the nature of your business but providing proof of use or receipt can be a solid basis for dispute resolution.
Develop fraud prevention processes
Fraud prevention and response processes are different for each firm. It's best to begin by conducting a risk assessment, which will help you and your staff understand what your typical customer looks like, what types of frauds your company is susceptible to, and the ways that fraudsters could find ways to circumvent your existing fraud prevention strategies.
Use the results of your risk assessment to revise your criteria for thresholds of fraud as well as fraud response processes.
Choose a one-stop payment system
Small and medium-sized firms, an all-in one solution is the ideal choice for both your budget and your working hours.
What to look for in an integrated payments solution
Machine learning
Machine learning models are trained to make decisions using huge amounts of pertinent existing data on output and input. Based on inputs provided, a model estimates the probabilities of a given output. It then uses this probabilities to decide on its fraud assessment of each transactions.
Rules that can be customized and risk-filtered
Custom risk filters allow businesses to set risk tolerance thresholds that will flag suspicious transactions when they meet certain criteria. These thresholds can be tuned in accordance with your company's needs. Filters can be configured for various factors such as:
- Authorized IP addresses from particular server or region
- Blocked IP addresses are known to be associated with fraudulent activity
- Multiple transactions, rapid and frequent from the same IP address.
- Address verification for shipping
- Volume or amount of transaction
Customizable rules give flexibility to different business types. If a clothes retailer could flag large-scale purchases while a wholesaler for construction could concentrate on billing and shipping data.