How can you prevent and manage the risk of fraud in online payments by 2023
Risk of fraud with payment is a part of every company. An effective payment method can be a huge benefit to businesses as it gives customers a a positive, trustworthy experience, and encourages them to shop with you again. A terrible payment solution can cause a lot of damage to your company: today there is a lot of fraud. However, a robust platform to process payments will help reduce risks, protect your clients and make sure your business is secure. Best of all, a comprehensive platform helps merchants manage fraud without a lot of trouble or fuss.
What is payment fraud?
Fraudulent payment occurs when there is a purchase where the person who made it didn't authorize the transaction. The most fraudulent transactions are usually performed using stolen credit card data that is a form of identity theft. It is common for fraud to result in financial or property loss by the merchant, consumer, or both.
Fraud can manifest via a myriad of means such as stolen credit card data or stolen information from a bank account such as phishing, triangulation. The results of these in dispute over payment (also called chargebacks), which are costly and can create problems for businesses of all sizes. There are a variety of fraud strategies and continue to change when our defense systems improve. In this piece, we'll cover different types of fraud involving credit cards.
Pay fraud is on the rise.
In The State of Online Fraud report of 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 fight fraud, and 40% more businesses saw the increase in attempts at test attacks as compared with previous times.
Payment losses from online transactions are predicted to surpass $343 billion between 2023 and 2027, according to Juniper Research. There is no question of whether your business will be at risk, however, it's a matter of the time it will be. Facing inevitable adversity, the best option is to safeguard your business by implementing robust fraud prevention methods.
Why is this increased fraud? The growth of e-commerce.
Stripe found that in 2021, companies that use their platform handled 60% more payment quantity than they did in 2020. This growth offered more opportunities to commit fraud.
Payment fraud is a common type
Card testing or carding attacks
In the course of testing cards an intruder tries to buy small items using stolen credit card details to determine if the number works, often many times with many different card. 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 by criminals in the aftermath of a data breach.
The majority of purchases for card testing are made from a foreign 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 could help to prevent this kind of fraud. The fraudulent charges will be challenged and reversed if they are not refunded.
Stolen credit cards
The fraud of a stolen credit card happens when consumers make an actual purchase with stolen credit card information. In this instance, the delivery and billing addresses could be completely different due to the fact that the fraudster wants the product delivered to them, not to the cardholder.
This kind of fraud could be difficult to detect due to the many reasons why a customer might require different addresses, like travel or living in a different location. In the event of suspicious circumstances purchases, it is possible to require manual review for whether it is appropriate to your company and the typical customer type.
What are the dangers of payment fraud?
The loss of revenue as well as the loss of customer trust top the list 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.
Lost revenue from payment disputes
Abandoned carts due to fraud prevention
Stripe discovered that "the greater the amount of fraud that a company tries to prevent, the more likely they will be to prevent legitimate purchases as well -- reducing the rate of conversion for payments." Preventative measures can often hinder the purchase of a customer.
If there are numerous verification steps or when you direct users to a pop-up or other site for them to input their credit card details customers may get frustrated and abandon their purchase.
Merchant responsibilities in the case of fraudulent transactions
Merchants are responsible for the transactions they make on their websites and in their stores. They must decide when to accept or decline a suspicious transaction.
The fees that are incurred due to fraud can be challenged or reversed and be charged due to the fraud. This can be avoided by refusing to refund suspicious transactions. In addition it is crucial to react to disputes regarding chargebacks for legitimate charges with proof that there was no fraud took place.
Five strategies for reducing payment fraud
Each of these five methods are either tools or services which are built at home or bought through a third-party. Internal risk management could be the best option for large-scale businesses with the resources to support them and purchased tools may make transaction management easier for smaller team members.
Integrate fraud prevention tools
Software that establishes thresholds for fraud can block or stop high risk purchases that match your criteria. Fraud threshold tools will hold a payment that looks atypical or alerts you to red flags due to information such as IP address or a customer's profile that is unusual.
A solution developed in-house can require long and money to create and is a good choice for companies with high customization needs 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 fraud risk will assist you in choosing the type of device is right for your company.
Risk management and hiring fraud teams
A person or a group to review transactions is an established practice in manually preventing fraud. The transactions that have been flagged can be reviewed and then approved or denied based on rules and guidelines that are set by your organization, or by your service provider. Manual approvals for higher-risk or higher-value transactions can help reduce your costs and losses due to fraudulent transactions.
Items that look suspicious are not to be accepted or returned. Disputes should always be responded to when there is evidence available or even accepted when there is fraud. A lot of disputes can be resolved by providing evidence which eliminates the fee, and retaining the money. Examples of strong evidence are a tracking ID or a screenshot of delivery, interactions with the customer, or proof of usage. Possible evidence varies based on the type of business you operate but providing proof of receipt or usage can be a solid base for establishing a dispute-free environment.
Develop fraud prevention processes
The processes for preventing and responding to fraud will look different for every business. It's best to begin by conducting risk assessments that will assist you and your staff understand what your typical customer looks like, what types of fraud your business is at risk for, and what ways fraudsters can work around your current fraud prevention tactics.
Use the results of your risk assessment to revise the criteria for determining your thresholds for fraud and fraud response processes.
Choose a one-stop payment system
Small and medium-sized businesses, an all-in-one solution is the ideal choice for both your budget and your working hours.
What to look for in an all-in-one payment system
Machine learning
The models of Machine Learning are trained to make decisions by feeding enormous amounts of relevant input and output data. Given inputs, the model determines the probability of a given output. It uses that probabilities to decide on its assessment of fraud in each transactions.
Customized risk filters and rules
Custom risk filtering allows firms to define limits on risk tolerance, which will flag suspicious transactions when they satisfy certain requirements. The thresholds can be adjusted in accordance with your company's needs. Filters can be configured for many different factors such as:
- The IP addresses are authorized by specific servers or from specific regions
- Blocked IP addresses are known to be associated with fraud
- Rapid, repeated transactions at the same IP address.
- Shipping address verification
- Transaction amount or volume
The ability to customize rules allows for flexibility various business models. While a retailer of clothing may flag purchases that are too large, a construction wholesaler might focus on shipping and billing data.