How To Stop Payment Fraud

In 2023, U.S. consumers lost more than $10 billion to fraud.?

The reality of the digital era is that fraudsters have more opportunities than ever to exploit vulnerabilities in security systems. For the payments industry, this an especially pressing issue, considering the sheer volume of sensitive information passing through payment systems every day.?

Let’s take a look at what payment fraud looks like in today’s payment landscape — and what your business can be doing to prevent it.?

What is Payment Fraud & How is It Detected??

Payment fraud encompasses various illicit activities aimed at unauthorized acquisition of funds or sensitive financial information during transactions.?

The different types of payment fraud pose significant risks to your business, ranging from financial losses to reputational damage. Detection and prevention of payment fraud require vigilant monitoring, robust security measures, and advanced technologies to reduce manual errors.

Many common types of fraud have been identified within the payments space over recent years, such as phishing scams and identity theft. Yet, as payment technologies have become more advanced, fraudsters have found new ways to exploit vulnerabilities in your system.?

Detection of payment fraud involves a diverse combination of technologies and innovative strategies. Capabilities like automated transaction monitoring are key, where patterns and anomalies in transaction data are analyzed to identify suspicious activities. Machine learning algorithms also help to analyze vast amounts of data to detect unusual patterns or behaviors indicative of fraud.?

Additionally, real-time fraud detection systems use rules-based algorithms and predictive analytics to flag potentially fraudulent transactions as they occur.

Security methods such as two-factor authentication (2FA) and tokenization add an extra layer of authentication by confirming the identity of users before transactions are authorized. Tokenization replaces sensitive payment information with unique tokens, reducing the risk of data breaches during transactions and safeguarding it from unauthorized access.

Understanding Current Trends in Payment Fraud

Payment fraud can manifest in a wide array of forms, each presenting unique challenges for your business to overcome. Here are five prevalent types of payment fraud to watch out for:

• APP Fraud (Authorized Push Payment Fraud): Also known as bank transfer scams, APP fraud involves tricking individuals or businesses into authorizing a payment to fraudsters. This often occurs through social engineering tactics, where victims are persuaded to transfer funds under false pretenses, such as fake invoices, investment opportunities, or romantic scams. Detecting APP fraud relies heavily on educating consumers about common scams and implementing robust authentication and verification processes for payments.
• A2A/P2P Fraud (Account-to-Account/Person-to-Person Fraud): This type of fraud occurs when fraudsters gain unauthorized access to individual or business accounts and initiate fraudulent transfers between accounts. A2A/P2P fraud can involve various methods, including phishing attacks, malware, or social engineering techniques. Detecting A2A/P2P fraud requires advanced fraud detection systems that monitor account activity for unusual patterns or behaviors and prompt additional authentication steps when suspicious transactions are detected.
• Online Payment Fraud: Online payment fraud encompasses a range of fraudulent activities conducted during online transactions, such as credit card fraud, identity theft, and phishing scams. Fraudsters exploit vulnerabilities in online payment systems to steal payment information, make unauthorized purchases, or trick users into revealing sensitive information. Detection of online payment fraud involves real-time monitoring of transaction data, employing fraud detection algorithms, and implementing security measures like encryption and tokenization.
• Account Takeovers: Account takeover fraud occurs when fraudsters gain unauthorized access to account information by stealing login credentials or exploiting security vulnerabilities. Once access is gained, fraudsters may change account details, make unauthorized transactions, or use the account for further fraudulent activities. Detecting account takeovers requires monitoring account activity for suspicious logins, implementing multi-factor authentication, and educating users about password hygiene and security best practices.
• Card Testing: Card testing involves fraudsters using stolen or compromised payment card details to test the validity of the cards through small, inconspicuous transactions. Once validated, the stolen card details may be used for larger fraudulent purchases or sold to other criminals for other ill-intentioned purposes. Detection of card testing involves monitoring for small, repetitive transactions, implementing velocity checks, and using fraud detection systems to identify patterns indicative of testing activity.

In truth, these are just a sampling of the many different forms that plague the payments space — and fraudsters are only becoming more sophisticated by the day.?

Preventing and detecting payment fraud requires a multi-layered approach, including robust security measures, advanced fraud detection technologies, user education, and cross-functional collaboration. By implementing effective strategies to combat each type of payment fraud, you can guard your business against financial losses and reputational damage.

How To Prevent Payment Fraud at Your Business

As a merchant, preventing payment fraud is crucial to protect your business and customers.?

Implementing robust security measures is paramount, such as using PCI-compliant payment processors and tokenizing customer data to prevent unauthorized access. Employing fraud detection tools that analyze transaction data for suspicious patterns or behaviors is crucial for early identification and intervention of potential fraud instances.?

Other key actions to take to prevent payment fraud include:

• Implementing multi-factor authentication and address verification systems to verify customers’ identities, or integrate the necessary payment service providers to enable such capabilities.?
• Educating your staff about common fraud schemes and training them to recognize red flags, reducing the chance of manual errors when automation is not available.?
• Monitoring transactions regularly for unusual activity and conducting periodic security audits to identify any potential vulnerabilities.?
• Staying informed about emerging fraud trends and updating your fraud strategies accordingly.?

Collaboration and information sharing among your different business departments can be essential for detecting and preventing payment fraud across the board. Sharing insights about emerging threats and fraud trends enables your team to stay ahead of fraudsters and strengthen business defenses.

Spreedly Helps You Reduce the Complexity of Security & Compliance

Maintaining a modern fraud prevention framework takes considerable time, expertise, and resources.?

At Spreedly, our payment orchestration solution provides you with the tools and technologies necessary to achieve a secure payment environment. Spreedly maintains Level 1 PCI compliance, ensuring you have access to a scalable payment ecosystem that matches your current needs.?

Speak with Spreedly today to find out how we can help you simplify your approach to fraud.