It is an unfortunate reality that any merchant doing business today must contend with payment fraud. Scammers have a plethora of options to deceive businesses and cardholders, and new forms of fraud have risen in popularity while businesses struggle to keep up. Vigilance in recognizing fraud and taking preventative measures to combat it are an absolute necessity for businesses of all sizes.
Fraud prevention requires staying up to date on trends and putting measures in place to protect against the varied threat landscape. In this article, we discuss some of the most common types of payment fraud and offer tips on protecting your business.
The basics of payment fraud
According to the Federal Trade Commission’s 2023 report, consumers reported losing more than $10 billion to fraud, with credit card fraud remaining the top reported identity theft type
Data breaches occur daily, and those that make the news are just the tip of the iceberg. Cybercriminals actively seek ways to defraud businesses, presenting an ongoing threat that leaves no company safe from payment fraud.
Credit card fraud occurs when scammers make purchases with stolen payment information. That theft can take many forms, meaning that customers and businesses must actively protect their sensitive information.
For example, it is remarkably easy to buy and sell personal information online. Depending on the information exposed, identity thieves can also open new accounts. Unfortunately for businesses and consumers, personal data is inexpensive to purchase; criminals can buy credit and debit card information on the dark web for as little as $5.
How payment fraud occurs
So, how exactly does payment fraud happen? Let’s look at some of the common methods that scammers leverage.
1. Phishing
Phishing is a common method of obtaining personal information. Over the years, phishing scams have evolved from obvious emails promising an “inheritance,” to sometimes hard-to-spot texts, emails, and spoofed websites. Phishing is intended for the victim to follow a link and then enter their personal information. Depending on the level of sophistication, these can look blatantly obvious or deceptively realistic. Once criminals capture this personal information, they can use financial details for any number of fraudulent purchases.
2. Pagejacking
Pagejacking occurs when hackers hijack a legitimate webpage or its search engine ranking to redirect traffic to a malicious site. While similar to phishing, it involves compromising the integrity of existing web paths rather than just sending a fake link.
3. Data breaches
Consumers don’t always need to unwittingly click a link or visit a spoofed website to expose their payment information. Sometimes, this information is exposed in a data breach which can cost millions in damage. Memorable breaches include Target and Marriott, resulting in the exposure of millions of customer’s payment and personal information, and the loss of millions of dollars in fines and lawsuits.
4. Card testing
Card testing is often an automated bot attack where scammers program scripts to test thousands of stolen card numbers against a merchant’s payment gateway in seconds. This can lead to massive gateway fees and infrastructure strain even if the transactions don’t “clear.” But when these transactions clear, the bad actor often makes larger purchases to max out the card. This type of fraud is usually done online and can result in expensive chargebacks and fines. Once payment information is exposed, whether through phishing, breaches, or stolen identities, card testing is common for scammers to test their ability to use the payments.
5. Friendly fraud
Fraud doesn’t always take place with stolen payment information. Friendly fraud occurs when a buyer purchases items using their actual payment information, most commonly online. This type of fraud involves the customer disputing a legitimate purchase with their bank, causing a chargeback, while keeping the product.
Sometimes, friendly fraud is accidental and caused by confused customers who may not recognize a purchase on their statement and respond by calling their bank. However, those doing it intentionally may have a number of reasons for initiating a chargeback, including being disgruntled with the merchant, buyer’s remorse, and cyber-shoplifting.
How to prevent payment fraud
Merchants looking to combat credit card payment fraud should, at minimum, take a few measures to protect their customers and business. Many companies do business online and must safeguard sensitive information. Cybersecurity software and services are widely available, and all businesses should protect their vulnerabilities. At a minimum, merchants should ensure their payment gateway utilizes AVS and CVV verification. For higher-risk environments, implementing 3D Secure 2.0 provides an extra layer of authentication that can actually shift the liability of fraud from the merchant back to the card issuer.
Stax provides merchants with built-in security tools and PCI-compliant vaulted storage, ensuring that sensitive data never touches your local servers, which significantly reduces your attack surface.
Monitoring for suspicious transactions
Due diligence in checking customer information to look for fraudulent transactions is also essential. Red flags such as mismatched billing and shipping information warrant a second look. High-value and expedited shipping packages from unfamiliar buyers may not always be a fraud indicator, but double-checking the details saves time, money, and the reputation of a business.
Businesses should also be on the lookout for small transactions in quick succession, as this is a clear indicator of card testing. To combat card testing without interrupting business, merchants should implement velocity checks, CAPTCHA at checkout, and IP rate-limiting to block bot activity while allowing genuine customers to shop.
Preventing payment fraud through customer service
Providing responsive and helpful customer service is the first step in preventing friendly fraud. Also, ensuring descriptors of the payment are clear and match the business name will help eliminate friendly fraud initiated by confused customers. Additionally, if this type of fraud is prevalent, maintaining a list of repeat offenders and no longer doing business with them may be a necessary step.
Pay attention to fraud prevention trends and developments
With many types of payment fraud taking place, businesses must be aware of the fraud trends most likely to affect them. Monitoring for redirects from your website and immediately attending to all fraud reports will protect your business, brand reputation, and customers.
Fraud prevention strategies vary and need to evolve with trends and the business’s unique challenges. Finding trusted partners and technology solutions to protect the company will provide a better customer experience and prevent devastating losses.
It is imperative for merchants to take measures to monitor for and take swift action against fraud in order to protect their business and their customers. By following security best practices, maintaining compliance, and exercising due diligence in protecting sensitive customer information, businesses can reduce their vulnerabilities.
FAQs about payment fraud
Q: What is payment fraud?
Payment fraud occurs when scammers make unauthorized purchases using stolen payment information from legitimate cardholders. Online personal information theft, phishing, data breaches, card testing, and friendly fraud are common methods used for payment fraud.
Q: Why is payment fraud a significant issue for businesses?
Payment fraud is a severe threat to businesses, as it exposes personal consumer information, breaches trust, and can lead to costly chargebacks, fines, and potential lawsuits. The impact can also extend to tarnishing a brand’s reputation and causing significant financial loss.
Q: What are some common types of payment fraud?
- Phishing: Cybercriminals trick individuals into revealing personal details through misleading emails, messages, or websites.
- Pagejacking: Scammers create spoof websites mirroring legitimate ones to trick customers into giving away their information.
- Data breaches: Unprotected data is exposed, leading to broad dissemination of customers’ personal and payment information.
- Card testing: This is often an automated bot attack where scammers program scripts to test thousands of stolen card numbers against a merchant’s payment gateway in seconds. This can lead to massive gateway fees and infrastructure strain even if the transactions don’t “clear.”
- Friendly fraud: Cardholders dispute genuine transactions, leading to unwarranted chargebacks.
Q: How can businesses prevent payment fraud?
- By utilizing cybersecurity software and services to safeguard sensitive information.
- Monitoring transactions for signs of fraud, such as mismatched billing and shipping details or quick, small transactions.
- Maintaining robust customer service to handle client queries and disputes promptly.
- Being aware of evolving fraud trends to update preventative strategies accordingly.
Q: Is it possible to completely eliminate the threat of payment fraud?
While businesses can take numerous measures to mitigate the risk of payment fraud, completely eliminating the threat is challenging due to the continual advancement of fraudulent techniques. However, regular updates on best practices in cybersecurity, diligent monitoring, and responsiveness to suspicious activities can substantially reduce exposure to risk.
Q: Why is the prevention of payment fraud essential for customer relations?
Ensuring the safe handling of personal data is a critical aspect of maintaining trust and ensuring a positive customer experience. Businesses that effectively prevent fraud demonstrate their commitment to customer safety, thereby earning customer loyalty.
Q: How can traditional practices like paper checks contribute to payment fraud?
Traditional methods like paper checks are often not as secure as digital payment methods. They are susceptible to theft, forgery, and alteration, making these businesses more exposed to fraud.
Q: How can technology help prevent payment fraud?
Leveraging technologies such as behavioral analytics and transaction monitoring can help identify fraudulent activities. These technologies can detect suspicious behaviors, apply risk checks, and verify transaction details, making them an efficient tool in preventing payment fraud.
Q: What options are available to help businesses fight against payment fraud?
A range of payment solutions providers, like Stax, offer secure platforms designed to monitor transactions and prevent fraud, thus safeguarding businesses and their customers.
Q: What role does responsive customer service play in fraud prevention?
Responsive customer service can address customer issues promptly, helping to prevent “friendly” fraud caused by confusion or unrecognized charges. By providing clear, concise information about transactions, businesses can avoid misunderstandings that might lead to fraudulent chargebacks.
