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Payment fraud is your biggest risk – and crypto has nothing to do with it

Author: Laura Ballam


When it comes to payment fraud, ignoring the risks can be disastrous. Fraud can lead to loss of revenue, damage to your company's reputation, and even legal repercussions. As payment fraud continues to rise, it’s increasingly important to stay abreast of the latest trends and have an effective strategy in place for tackling the problem.

While technology advances, so do the methods fraudsters use to deceive us. Fraudsters are incredibly savvy when it comes to targeting customer data. They use multiple tactics to obtain personal information like credit card numbers and expiration dates. It can start with a seemingly innocent phone call or email, but before you know it, they have everything they need to make fraudulent purchases in someone else’s name.

Payment fraud can happen to anyone, and that's why it's important to know how to manage it. Your customers can be deeply impacted by payment fraud, and by protecting them from the headaches and financial stress that result, you can elevate your financial organization and gain customers for life.

The state of payment fraud

Merchant Fraud Journal recently released their Consumer Payments Survey Report detailing consumer expectations around digital payments, how it’s evolved with the rise of eCommerce, and the current state of payment fraud. With all the hype around cryptocurrency and the security around it you’d think that’s a major focus for the payments industry, yet surprisingly only 15% of consumers have ever made a payment using cryptocurrency. In terms of more traditional digital payments though, 75% of consumers make online payments either weekly or monthly - and a whopping 10% do so daily. Which means the risk for merchants and financial organizations is still primarily online payments – at least when it comes to fraud.

Since fraudsters go where the money is, they follow consumer behavior – so when 40% of consumers prefer 2FA (two-factor authentication), you can bet fraudsters are focused on beating it. This is why phishing, social engineering, scams, and even OTP bots have increased dramatically in recent years.

BNPL (Buy Now Pay Later) fraud follows the same theme. With BNPL increasing in popularity and transactions expected to increase by 450 million by 2026, fraud is following suit - rising by 211% from 2021 to 2022. Yet another type of payment fraud, CNP (Card-not-present) is predicted to make up 73% of all card-related losses in 2023 – not surprising with the prevalence of online buying.

When it comes to payment fraud overall, the impact is staggering - 43% of consumers reported falling victim to payment fraud recently, with 62% being repeat victims (experiencing payment fraud 2-4 times in the past two years). It’s on the verge of becoming an epidemic.

How to detect and prevent payment fraud

The good news is, cutting-edge technology can detect and prevent payment fraud activity before it even happens. Advanced machine learning techniques enable modern fraud prevention solutions to effectively identify and prevent fraudulent activities in real-time. By analyzing vast amounts of data from multiple sources, including user behavior, activity, context, and behavioral biometrics in real-time, organizations can quickly and accurately detect any unusual or suspicious activity that may be indicative of fraudulent behavior. Comprehensive fraud defense solutions that leverage machine learning algorithms can also learn and adapt to new types of fraudulent activity as they appear, ensuring their customers are always protected against evolving threats.

Protect the customer, but don’t forget about them       

You don’t want your brand associated with fraud or lax security. A consumer who experiences fraud connected to your business, especially if it’s their first experience with you, will always have a poisoned view of your company – and you can bet they’ll share it with others. So it’s crucial to your reputation and business growth to combat fraud before it happens.

At the same time, consumers are increasingly educated, and understandably concerned, about the risks of online payments – especially when it comes to security and privacy. But they still want a seamless experience with minimal friction. In fact, 63% of consumers have abandoned a transaction due to online payment friction. Unfortunately, merchants often add additional steps (like 2FA) and traditional fraud solutions typically use a blanket approach that adds unnecessary friction and risks alienating customers. So, how can merchants and payment providers balance the wants of the customer with the needs of protecting against payment fraud?

How Merchants can adapt

As with all fraud defense, a multi-layered approach is best for preventing payment fraud. Organizations must employ all the modern tools available, from AI and ML to anomaly detection and behavioral biometrics, to identify and prevent payment fraud in real-time. Enhancing existing fraud solutions with first-party data that breaks down silos to build comprehensive identity graphs can dramatically increase the effectiveness of any fraud prevention strategy.

Identity resolution that leverages behavioral biometrics is one of the best ways to catch and prevent payment fraud. With a thorough understanding of your customer’s digital body language you can instantly detect anomalies and match behavior from the moment a visitor lands on your site – not after they’ve logged in with potentially stolen credentials. This enhanced information provides invaluable insight into a user’s true identity and enables you to activate precautions before it’s too late.

Precautions can of course increase friction, so adopting a staggered approach to additional security measures helps to offset the friction to benefit ratio. For example, when a known/logged in user is attempting a low-value transaction, and their behavior matches their profile, a one-click purchase option may be fine. When there are obvious indicators of fraud – such as logging in then immediately going to an item without searching or browsing – implementing a secondary authentication measure makes sense. Any risky activity, such as attempting to change login information or changing or adding a payment method then attempting a high-value purchase, should be addressed with an appropriate action. As the merchant you can opt to cancel the transaction, require additional biometrics or 2FA, or perhaps have a live rep verify information before authorizing the transaction. Behavioral biometrics will provide a much clearer picture to base this decisioning on. An additional layer of protection can be used by tracking known mule accounts or compromised accounts through innovative solutions like Sense and Trace.

Payment card fraud is a serious issue that must be managed effectively to keep both customers and businesses safe. With today's evolving technology, fraudsters are becoming more sophisticated than ever before, which means businesses must leverage the right technology and data platform to detect and prevent fraud before it becomes an issue. Taking an innovative approach that leverages first-party, real-time data capture allows companies to stay ahead of the latest payment card scams, protect their customers’ sensitive information, and ensure the safety of their payments business. Don't leave your company's finances vulnerable - take action to protect your bottom line and your brand's reputation.

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