What Is Payment Fraud?
Payment fraud is a broad category of fraudulent activities. It can take different forms, including the following:
- Card not present fraud, which occurs when criminals use stolen credit card details to make purchases where a physical card is not required. Due to the nature of card not present fraud, it is a big problem for online transactions.
- Account takeover fraud, which occurs when criminals gain unauthorized access to the victim’s account in order to make purchases or other transactions.
- Chargeback fraud, also called friendly fraud, which involves buyers who dispute legitimate credit card transactions in order to get a refund.
Fraudsters use different techniques to access the financial details they need to carry out their scams. Phishing and credit card skimmers are both common approaches. In the case of friendly fraud, consumers simply contact their credit card providers to try to get a refund for items or services they have already received.
Fraudulent Payments Are on the Rise
According to U.S. Bank, payments fraud decreased between 2018 and 2022, but then it surged again in 2023. In 2023, 80% of organizations were impacted by payment fraud, up from 65% in 2022.
LexisNexis says cybercriminals are exploiting new opportunities to target both individuals and businesses as digital service increase. Two key pain points are account creation and chargebacks. Nearly half of fraud stems from the account creation process, while merchants say chargeback fraud increased by 30% in 2023.
In addition to changing technology, cultural attitudes among Gen Z could be to blame. According to Payments Journal, Gen Zers often distrust capitalism, and this may lead them to see defrauding companies as morally acceptable. Research has found that 42% of Gen Zers admit to chargeback fraud.
The Wall Street Journal says that reverse charges are easier than ever, and that’s contributing to abuse. In 2023, consumers disputed 105 million charges with U.S. card issuers, and this figure could rise 40% by 2026.
How to Control Payment Fraud
Payment fraud is not a victimless crime. Businesses can lose needed revenue. In the best-case scenario, they may have to pass fraud-related costs onto consumers. In the worst-case scenario, fraud could threaten the very survival of a business. Fraud can also damage reputations and relationships. When customers are impacted by fraud, they may blame businesses for failing to keep their payment information safe.
So, what can businesses do to control payment fraud?
- Verify identities during account creation. Fraudulent account creation is a common source of fraud, so anti-fraud measures need to start here. TransUnion has good tips on how to fight account creation fraud, including using tools to monitor for suspicious activities and patterns and following best practices for identity verification, even if you are not required to follow these regulations.
- Enable strong security measures. You can help customers keep their accounts safe by requiring strong passwords and two-factor authentication.
- Keep payment details secure. Great care needs to be taken when storing payment details. Adherence to the PCI Data Security Standard is an important way to keep sensitive information safe.
- Restrict access to suspicious IP addresses. Some IP addresses are associated with fraudulent parties, so it makes sense to restrict access in your gateway configuration settings.
- Manage chargeback requests. Some chargeback requests are legitimate, but others are fraudulent. You won’t be able to tell the difference until you review detailed chargeback details.
- Help customers avoid phishing. Fraudsters may pose as your business to try to trick your customers into revealing account and payment information. Help your customers by showing them what legitimate requests look like and how to handle suspicious requests. (They should NOT click on links when there is any doubt!) You can also watch for phishing campaigns that use your company’s name and ask customers to report suspicious activity so you can investigate.
- Work with a trusted payment service provider. If all of this sounds overwhelming, you can relax. Working with a trusted payment service provider can make it easy to fight payment fraud.
Are you looking for a payment service provider that helps you stop fraudulent payments? Tranzpay is PCI and SOC2 compliant, and the platform makes it easy to restrict access to certain IP addresses and manage chargebacks. Learn more.
