What is Payment Fraud? What are the Best Strategies to Protect Your Business?
Payment fraud is the broad umbrella term for things like clean fraud or account takeover. Essentially, anytime someone who uses your payment card or account information without permission is committing payment fraud. We’ll share some ways merchants can protect their business against this threat, but first, let’s take a closer look at payment fraud itself.
- Payment Fraud
Payment fraud refers to any criminal fraud tactic where 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.
[noun]peɪ • mənt • frɔd
As the definition implies, “payment fraud” can cover any type of false, illegal, or illegitimate payment transaction completed by a criminal. The perpetrator can engage in payment fraud for a variety of reasons, but the main underlying cause is financial gain. The fraudsters could make off with stolen funds, or with the merchandise they can flip later and convert to cash, depriving their victims of their property in the process.
While payment fraud doesn’t have to be conducted online, fraudsters tend to operate primarily in the eCommerce space. It’s easier to commit card-not-present fraud as compared to card-present fraud. An almost limitless number of opportunities are available for fraudsters, but as a merchant, it’s harder for you 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 taken a liking to it in the years since.
Common Payment Fraud Tactics to Watch for
As we alluded to already, a wide variety of individual tactics fall under the umbrella of payment fraud. Some of the most common include:
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Hackers can obtain the data they need, including cardholder information, banking information, login credentials, etc., through a variety of channels. Phishing is a common tactic where the fraudster creates a dummy site or email designed to trick a user into handing over their information. The fraudster might also use malware to steal information from cardholders without their knowledge or purchase stolen information on the dark web.
Not All Fraud is Considered Payment Fraud
Payment fraud is a pervasive problem in the eCommerce space. However, you should keep in mind that not all fraud tactics you might encounter will qualify. Payment fraud is distinct from other eCommerce fraud threats, in that it doesn’t involve making a purchase with phony information. Tactics include:
Payment Fraud |
Other Fraud |
Identity Theft | Friendly Fraud |
Account Takeover | Family Fraud |
Synthetic Fraud | Affiliate Fraud |
Clean Fraud | Return Fraud |
Wire Transfer Scam | Triangulation Fraud |
Business Email Compromise |
Again…this is merely a shortlist of potential fraud threats; plenty of other non-payment fraud tactics exist, allowing bad actors to separate you from your hard-earned cash.
Contrary to popular belief, these threat sources dwarf losses resulting from genuine payment fraud. One study found that 41% of merchants considered friendly fraud one of their fastest-growing threats in 2020, beating out payment fraud. And, by 2023, friendly fraud will account for roughly 61% of chargebacks issued against merchants.
Top 8 Tips to Stop Payment Fraud
The problem is, identifying chargeback triggers like friendly fraud relies on eliminating other legitimate chargeback triggers. You must rule out legitimate chargeback claims before you can address false ones. In other words, many fraud tactics can’t be identified without ruling out payment fraud first.
Here are eight simple tips to help prevent payment fraud and protect your business against loss:
In Conclusion…
In this post, we explored how fraudsters manage to carry out payment fraud schemes, as well as some of the most common tactics they use. We also looked at fraud threats outside the realm of payment fraud, and some practical steps you can take to reduce your risk.
Have additional questions? Check the FAQ below, or get in touch with the experts at Chargebacks911 to see how you can help manage fraud, reduce chargebacks, and recover revenue.
FAQs
What is payment fraud?
Payment fraud refers to any criminal fraud tactic where 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.
Is payment fraud only an online threat?
Payment fraud doesn’t have to be conducted online. However, fraudsters tend to operate primarily in the online space, since it’s easier to commit card-not-present fraud as compared to card-present fraud.
How do you know if a payment is fraudulent?
First, you need to familiarize yourself with common tactics used to carry out payment fraud. Next, you can deploy a variety of fraud prevention tools and tactics designed to target each of these threats. You should also stay up-to-date with fraud prevention developments in the card-not-present space.
How is payment fraud most commonly detected?
This depends on the individual fraud tactic used. For example, address verification (AVS) can help stop clean fraud, but it may not work with account takeover if the cardholder’s billing and shipping information is already saved to the account. It’s critical for merchants to employ multiple different tools to get a more detailed impression of each purchase.
What factors determine whether a person will commit fraud?
According to the New York Office of the State Comptroller, four factors must be present for a person to commit fraud: opportunity, low risk of getting caught, rationalization in the fraudsters mind, and justification that results from the rationalization.
What are the most common forms of payment fraud?
Fraudsters can employ a number of different tactics to commit payment fraud in the card-not-present space. Identity theft, account takeover, synthetic fraud, clean fraud, wire transfer scams, and business email compromise are among the most common.