How do you stop and control the risk of fraud in online payments by 2023
Risk of fraud with payment is inherent in any enterprise. A great payment solution will benefit businesses because it offers customers satisfaction and trust, and encourages them to shop with you again. An unprofessional payment system can sink your ship: today there is a lot of fraud. But, a comprehensive platform to process payments will help reduce dangers, safeguard your clients, and help keep your business secure. Most importantly, an extensive platform can help merchants combat fraud with a minimum of hassle or complexity.
What exactly is fraud in payment?
The risk of fraud is present in every purchase where the person who made it was not the one to authorize the transaction. The most fraudulent transactions are usually made with stolen credit card information that is a form that is known as identity theft. It is common for fraud to result in losses to property or finances for the merchant, consumer, or both.
Fraud can come about via a myriad of means: stolen credit card information as well as stolen account details, phishing, triangulation. We can see the effects of it in payment disputes (also known as chargebacks), which are costly and can create problems for any business. The methods used to commit fraud are diverse and are likely to continue evolving as we improve our security mechanisms. In this article we'll look at different forms of fraud involving credit cards.
Payment fraud attempts are increasing
In The State of Online Fraud report from Stripe the researchers discovered that the volume of fraud has grown substantially since the start in the Covid 19 pandemic: 64% of global business leaders stated that it is more difficult for them to stop fraud. 40% of businesses reported an increase in attempted card testing attacks compared to previous times.
Payment losses from online transactions are predicted to exceed $343 billion globally between 2023 and 2027, in accordance with Juniper Research. It's not a matter of the likelihood that your company will be at risk, but the time it will be. Facing inevitable adversity, the best option is to defend your business with strong fraud prevention techniques.
What's the reason for this rise in fraud? The growth of e-commerce.
Stripe discovered that by 2021, companies that use their platform handled 60% more in payment quantity than they did in 2020. This growth offered more opportunities to commit fraudulent transactions.
Payment fraud is a common type
Card testing and carding attack
In the course of testing cards, a bad actor attempts to make small purchases with stolen credit card numbers in order to test if the number works, often many times using a variety of card. This allows fraudsters to quickly determine if the information is able to be utilized to make larger purchases. This is typically the case when the card information is bought by malicious actors after a breach of data.
Purchases for testing cards are typically purchased from an overseas country using billing and delivery addresses that are not in line with the customer's IP address location.
The decision to decline or even refund suspicious transactions could help to prevent this type of payment fraud. Charges that are fraudulent will be denied and reversed in the event that they're not reimbursed.
Stolen credit cards
A fraudulent use of stolen cards is when a customer makes an actual purchase with stolen credit card information. If this is the case, billing and delivery addresses may differ since the fraudster would like the item delivered to them and not the cardholder.
The frauds of this kind can be hard to spot since there are many motives why customers may require a different address, like travel or living far from their home. In the event of suspicious circumstances the purchase might require manually reviewed to see if it is appropriate for your organization and customers.
What are the risks of fraud in the payment industry?
Revenue loss and loss of confidence are the top two concerns for risk of fraud in the payment industry, however the business impact of fraudulent actions can also have more harsh 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 observed that "the greater the amount of fraud that a company attempts to stop, the more likely they are to block legitimate charges in addition to reducing their payment conversion rates." The preventative measures could occasionally hinder the process the purchase of a customer.
If you have too many steps to verify, or you send users to a pop-up or a different site where they have to input the details of their credit card, they may become dissatisfied and drop their order.
The merchant is responsible for fraud
Merchants are responsible for the transactions they make on their websites and in their retail stores. They must decide when they should accept or reject an unreliable transaction.
The charges that result from fraud are often contested or retracted, and result in a charge due to the fraud. You can prevent these fees by declining and refunding fraudulent transactions. However you must respond to chargesback complaints in the event of legitimate charges, by providing evidence that no fraud occurred.
Five methods to prevent payment fraud
Five of the strategies are tools or services that can be built by the company or purchased through a third-party. In-house risk management may be the ideal choice for businesses that have the resources to support them, while purchased tools can simplify transaction management for small team members.
Integrate fraud prevention tools
Software designed to set thresholds for fraud will hold or prevent high-risk transactions that meet your requirements. Tools for fraud thresholds will stop any payment that appears unusual or raises red flags based on information such as IP address or a customer's profile that is unusual.
A solution developed in-house can require considerable time and resources to develop, but may be a good choice for companies that require a lot of customization or that handle sensitive information. Third-party solutions are quicker to deploy, but may come with a per-transaction fee.
Identifying the scope and sensitivity of your risk for fraud can aid in determining which kind of software is appropriate for your business.
Hire fraud and risk management teams
A person or a group for review of transactions is a common practice for manually preventing fraud. The transactions that have been flagged can be reviewed and approved or declined in accordance with the guidelines and rules that are set by your organization or your payment provider. Manual approvals of high-risk or high-value transactions may help reduce your costs and losses due to fraud.
Items that look suspicious are not to be accepted or returned. Any disputes should be addressed with evidence to provide or accepted in the event that there is fraud. There are many disputes that can be settled with evidence that is solid which eliminates the fee, and retaining the money. Examples of strong evidence are a tracking ID, screenshot of the delivery, the interaction with the customer and proof of use. The types of evidence you can use depend on your company's nature, but providing any evidence of use or receipt is a good foundation for dispute protection.
Develop fraud prevention processes
The processes for preventing and responding to fraud differ for every business. It is helpful to begin with risk assessments to help you and your staff know what your typical client looks like, what types of frauds your company is vulnerable to, as well as the ways that fraudsters could find ways through your fraud protection methods.
Utilize the findings of your risk assessment to revise your fraud threshold criteria and procedures for responding to fraud.
Make the switch to an all-in-one solution for payment
for medium and small firms, an all-in one solution can be the best option for your money as well as your working hours.
What are the things to search for in a complete payments solution
Machine learning
The models of Machine Learning are trained for decision-making by being fed enormous amounts of relevant output and input data. Based on inputs provided, a model determines the probability of each given output. It uses that likelihood to determine its fraud assessment of each transactions.
Rules that can be customized and risk-filtered
Customized risk filters enable firms to define risk tolerance thresholds that will flag suspicious transactions when they satisfy certain requirements. The thresholds can be adjusted to meet your business needs. Filters can be set for many different factors such as:
- The IP addresses are authorized by certain server or region
- Blocked IP addresses known for fraud
- Multiple transactions, rapid and frequent from the same IP address
- Verification of shipping address
- The amount or the volume of transactions
Flexible rules allow for diverse business forms. Where a clothing merchant might flag excessively large purchases while a wholesaler for construction could concentrate on billing and shipping information.