What is Payment Fraud?Whether Online or In-Person, Payment Scams are Ubiquitious
What is Payment Fraud? Definitions & Overview
Payment fraud has been around since the dawn of commerce.
Whether the medium of exchange was gold, coins, paper money, or virtual currency, parasitic fraudsters have always lurked around in an attempt to siphon off hard-earned money from buyers and sellers.
Today’s marketplaces are largely digital, although in-person retailing is still common. Many buyers now pay with credit and debit cards which, while comparatively more secure than cash, are still far from immune from fraud. In this chapter, let’s define what payment fraud is and clarify common misconceptions about the term.
Payment Fraud
In this guide, we take a look at what payment fraud is, how it works, and how it impacts merchants. We’ll also share tips and best practices you can use to identify, detect, and prevent these tactics from harming your business.
What is Payment Fraud?
- Payment Fraud
Payment fraud refers to any criminal fraud tactic by which the perpetrator conducts a financial transaction without a valid authorization to do so. The fraudster typically impersonates a legitimate user, then completes as many purchases as possible (often in quick succession) to acquire goods for resale.
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As the definition implies, “payment fraud” can cover any type of false, illegal, or illegitimate payment transaction completed by a criminal. Perpetrators can engage in payment fraud for a variety of reasons.
The fraudster’s specific aim can vary based on the tactic, but of course, the main underlying cause in any case of payment fraud is financial gain. They could be trying to make off with stolen funds. Or, the scammer might be trying to acquire valuable merchandise they can flip later and convert to cash. In either case, the fraudster profits, while the victims — the cardholder and the legitimate merchant on the other side of the payment — lose.
Payment fraud doesn’t have to be conducted online. Fraudsters tend to operate primarily in the eCommerce space, though, because it’s easier to commit card-not-present fraud as compared to card-present fraud.
An almost limitless number of opportunities are available for card-not-present fraudsters. In contrast, it’s much harder for you, as a merchant, to verify customers. EMV chip technology might have been the force that pushed a lot of fraudsters into the CNP space, but they’ve really adapted to the environment in the years since.
Payment fraud doesn’t have to be conducted online. However, fraudsters tend to operate primarily in the online space, as it’s easier to commit card-not-present fraud when compared to card-present fraud.
