Securing Your Transactions: Understanding Payment Fraud and Prevention.

Payment fraud is one of the biggest threats to business, and as the cost of doing business continues to rise in the ongoing economic crisis, it’s a threat no organisation can afford to ignore. On average, organisations lose 5% of revenue to fraud each year, with a typical fraud case causing a loss of $8,300 per month and lasting around 12 months before detection.

Knowledge is power when it comes to payment fraud. Understanding the various forms it can take is crucial for businesses and financial institutions if they are to protect sensitive information, protect their reputation, and prevent potentially devastating financial losses.

Common types of payment fraud?

Understanding common types of payment fraud is essential for businesses to implement effective prevention measures and protect themselves and their customers from financial losses and reputational damage.

• Account takeover: This is when fraudsters gain unauthorised access to a victim's financial accounts, often by stealing login credentials through phishing attacks or malware, enabling them to transfer funds, make purchases, or withdraw money without the victim's knowledge.
• Business Email Compromise (BEC): These scams use social engineering techniques to compromise business email accounts, often targeting employees with access to financial information or payment systems. They may then impersonate executives or vendors to initiate fraudulent wire transfers or payment requests.
• Credit card fraud: Although this can happen through card skimming, where the card details are illegally copied from the magnetic stripe, phishing scams are also used to trick individuals into sharing card information.
• Friendly fraud: AKA chargeback fraud. Occurs when a customer disputes a legitimate transaction with their bank or credit card issuer, claiming they did not authorise the purchase or did not receive the goods or services. This is one of the biggest threats to businesses in terms of fraud and is increasing 20% per year, taking $4 billion in revenue from businesses around the world.?
• Phishing and spoofing: Phishing involves fraudsters sending deceptive emails, text messages, or websites that appear to be from legitimate sources to trick individuals into providing sensitive information like login credentials or financial details. Spoofing, on the other hand, involves manipulating caller ID or email headers to make communications appear to come from trusted sources. Research suggests 94% of organisations were victims of phishing attacks in the last year, and 96% of those were negatively impacted by it.

While a recent report underscores the effectiveness of existing regulatory measures, such as Strong Customer Authentication (SCA), in curbing traditional forms of fraud, it also warns of the rise of 'social engineering' schemes, where fraudsters exploit human psychology to manipulate individuals into divulging sensitive information.

Prevention is better than cure

Utilising reputable and secure payment processing systems that comply with industry standards for data security, such as PCI DSS (Payment Card Industry Data Security Standard) is essential in preventing fraud, but there are additional steps that will maximise security:

Education is key: Many types of fraud are detected by tips (42% according to one study), with more than half of all tips coming from employees, so it pays to provide training to employees and customers on how to recognise fraud schemes.

Don’t underestimate the effectiveness of Multi-Factor Authentication (MFA): Requiring multiple forms of verification, such as passwords, biometrics, or one-time codes sent via SMS or email adds an extra layer of security by making it harder for fraudsters to gain unauthorised access.

Implement Fraud Detection Tools: Use fraud detection software and services that can analyze transaction patterns, detect anomalies, and flag potentially fraudulent activity in real-time. These tools can help identify and prevent fraudulent transactions before they occur. PayFuture is driving new technology innovation in these markets as customers uptake in ecommerce is growing exponentially. However with growth also comes risk which is heavily mitigated by our Anti-Fraud measures. With PayFuture’s Risk and Fraud monitoring system utilising Deep Learning AI to detect and auto alert merchants of potential risks. With bespoke rules engines merchants can adopt highly bespoked fraud screening profiles adapted to their business’s needs, addressing fraudulent activity while simultaneously boosting sales revenue.

Regularly inspect and secure physical payment devices: this includes card readers and ATMs, to prevent tampering or skimming. Use tamper-evident seals and consider installing security cameras.

Verify customer Identities and enable Address Verification (AVS): Procedures that verify the identities of customers include requiring additional documentation or conducting identity verification checks. For card-not-present transactions, utilise AVS to confirm that the billing address provided by the customer matches the address on file with the card issuer. This helps prevent fraudulent transactions using stolen card details.

Why it matters

Beyond the obvious financial losses created by payment fraud, there are a range of other consequences that can cause longer-term damages that is arguably harder to recover from.

Falling victim to payment fraud can damage a company's reputation if customers perceive it as unable to protect their financial information. Businesses also often have insurance coverage for losses due to fraud, but premiums and coverage terms can be affected by the level of risk exposure. Understanding payment fraud allows businesses to assess their risk profile accurately and negotiate favourable insurance terms.

Furthermore, since many industries have regulatory requirements regarding the protection of financial data. Understanding payment fraud helps businesses stay compliant with relevant laws and regulations, avoiding potential penalties or legal issues.

Dealing with payment fraud can be time-consuming and resource-intensive. If you need help understanding fraud patterns and implementing appropriate fraud prevention measures, get in touch with our team today.?