In the last few years, payment fraud has grown exponentially. Research shows online sellers lost $130 billion to online payment fraud between 2018 and 2023. This problem affects businesses of all sizes and industries, but companies can avoid it with proper online fraud management.
Investing in payment fraud management protects your business and customers from unauthorized access. Read our blog post to discover the top fraud prevention strategies to safeguard your business from the consequences of payment fraud.
What Is Payment Fraud
Payment fraud is the unauthorized manipulation of payment processes to receive, spend, or transfer money illegally. It undermines the integrity of financial transactions and threatens the security of personal and business data.
There are two categories of payment fraud:
- “Card-present” fraud occurs when stolen or counterfeit cards are used psychically. However, this has become less common as criminals mostly focus on online fraud.
- “Card-not-present” fraud is online payment fraud. It usually involves the unauthorized use of payment information (card number, billing address, CVV, and expiration date) to purchase products online, for instance, through e-commerce websites.
Types of Online Payment Fraud
Various types of fraud lead to adverse outcomes for both businesses and users. This article provides information on managing online fraud, but it’s essential not to overlook the existence of fraud related to mobile transactions and check scams.
Credit Card Fraud
Credit card fraud happens when someone uses someone else’s credit card information without authorization to purchase. This can happen with physical card theft or, more commonly, by finding credit card information online. Credit card fraud is common and can be minimized with robust payment fraud detection software that secures all endpoints and blocks automated threats in real-time.
Debit Card Fraud
Debit card fraud happens when someone gains access to someone else’s bank account through their debit card information. This allows them to buy things or withdraw cash directly from a victim’s bank account. Unlike credit card fraud, debit card fraud immediately impacts someone’s funds. Financial institutions can protect against debit card fraud with online transaction fraud detection that can identify suspicious transactions in real-time.
Which Industries Are More Exposed To Fraudulent Transactions?
Especially considering the high volumes, industries that deal with high transactions are at the most risk. Some of the most vulnerable sectors include:
E-commerce
The growth of online shopping has made e-commerce platforms prime targets for various types of fraud.
Financial services
Due to the large volumes of money they process, financial institutions like banks, neobanks, payment service providers, and others often face fraudulent activities.
Healthcare
Healthcare providers are vulnerable to fraud involving insurance claims, prescriptions, and billing schemes.
Hospitality
Hotels, restaurants, and travel agencies are exposed to online payment fraud, especially from unauthorized credit card transactions or false bookings.
Insurance
Insurance companies frequently deal with fraudulent claims and identity theft, negatively affecting their profitability and operational efficiency.
Why Is Online Payment Fraud Important?
Online payment fraud can be frustrating for both customers and businesses. For online sellers, it is a considerable cost and the top concern for finance professionals. If they fall victim to fraud, they lose the ordered merchandise.
When the customer reports the fraud to their bank, the merchant is charged for the fraudulent purchase—this is known as a chargeback. The seller also has to pay chargeback fees to their payment provider.
Benefits of Online Fraud Protection
Fraud management mechanisms enhance a business’s reputation with customers and decrease their loss of income. But there are a variety of benefits. Here’s an overview of the key benefits that companies can gain from implementing fraud management measures:
Protection of Financial Assets
Online payment fraud can be costly in most cases, especially for businesses. Fraud protection helps protect a business’s financial assets. As companies grow, the potential for fraud at scale can pose an even more significant threat. By implementing fraud management tools, businesses can reduce their risk of financial loss and more reliably plan for the future.
Protection of Customer Data
Payment fraud often involves stealing customer data, such as credit card numbers and personal data. Investing in fraud management tools helps businesses protect themselves and safeguard their customers. By implementing online payment fraud tools, businesses can protect their customers’ data and build customer trust and loyalty.
Chargeback Mitigation
For businesses, chargebacks can result in lost revenue, extra time, and additional effort. Fraud management tools can prevent chargebacks by detecting and preventing fraudulent transactions and surfacing chargeback trends and vulnerabilities.
Manage Your Fraud Processes Based on Your Dynamics: Craftgate’s Fraud Management
Each business has varying needs and priorities when managing suspicious transactions. This is such a sensitive issue that if companies don’t use a fraud solution tailored to their dynamics, they may experience revenue losses due to the blocking of non-risky transactions.
For this reason, Craftgate’s payment orchestration provides member merchants with a customized fraud management system based on their needs rather than a one-size-fits-all approach.
Thanks to its flexible rule management, merchants can determine which transactions are considered suspicious and which will be blocked. They can list transactions that trigger their rules and, after reviewing them, cancel the relevant transactions.
This way, they can plan the actions to be taken in fraud management that are most appropriate for their business needs.
For more information about how Craftgate provides rule-based fraud management for each merchant, contact us!
