Different Types of Online Payment Fraud and How Security Can Prevent Them from Happening
Payment fraud is an ever-present concern for any business. Fraudulent charges are a huge problem for any e-commerce or online business accepting payments on their website.
In fact, credit card fraud is the second most common type of online crime, with about one in four people experiencing it each year. When you're an online business owner, this can be a real headache as you have to deal with chargebacks and refunds, which can lead to decreased profit margins.
Fraudulent payments are easy to commit, but luckily there are many ways that you can avoid them by taking some preventative measures. This includes payment fraud protection from your payment provider.
Before we look at the different payment fraud types it's important to know that payment fraud is never completely avoidable due to the fact that criminals will always find a way around new security measures. However, by following some best practices you can significantly reduce your risk of falling
Let's go over 7 different types of payment fraud and how you should try to prevent them from happening on your website!
Card payment fraud is a type of payment fraud that takes place when the payment card information of an individual is stolen and used for fraudulent transactions. The person's identity can be stolen by someone who has access to their personal information, such as a hacker or disgruntled employee.
In other cases, credit card data may be stolen from retailers during large-scale security breaches, which are unfortunately becoming more common in recent years. When this happens, many people find themselves having to deal with issues like unwanted charges on their account and identity theft just because they shopped at one store!
A chargeback is when a payment made to you by a customer, usually for an online purchase, is reversed and the funds are returned to the customer's bank account, typically because there was some kind of error or complaint processing their payment. When this happens, not only do you lose the payment (which could be thousands of dollars), but you also must pay a fee to your bank or credit card company for each transaction that was charged back.
Friendly fraud is a similar type of fraud to the chargeback scam, but usually, this type of fraud is accidental. When a purchaser makes a payment through your site and later on doesn't recognize the payment on their bank statement.
Nearly every company has experienced the phishing email scam at some point or another. The most common form of payment fraud, it is committed by sending emails to unsuspected users in an attempt to steal sensitive information such as passwords and credit card numbers.
Phishing emails often masquerade as legitimate requests for personal information from trusted companies, but these messages are not sent by the company in question; instead, they come from cybercriminals who want your money or identity, so they can use it for their own purposes.
Account takeover fraud is usually executed by using a technique known as credential stuffing, which involves cybercriminals collecting details about previous site compromises and automatically probing for user account weaknesses.
When they find an account that has a password that's easy to guess, they make payment from their own payment processor accounts on payment sites such as PayPal, until the account is closed down by the payment site.
Payment fraud costs retailers billions of dollars each year in chargeback fees, payment processing charges, and actual loss through stolen goods or services. This is why payment processing companies work hard to prevent payment fraud and keep your transactions safe.
One way payment processors do this is through payment scoring. Payment scoring uses a payment model to evaluate risk factors, or purchases that may indicate the payment is suspicious in nature. If the payment meets certain criteria, it will be blocked and require further action by the retailer before it can be approved.
Payment fraud is an unavoidable risk for online payment processing, but it can be minimized by using proper payment processing procedures.
The following payment best practices will help you reduce the chance of payment fraud occurring on your site:
The payment industry is working diligently to stay ahead of payment fraud, but it continues to grow due to the sophistication and ingenuity of hackers. It's up to you as a business owner or payment processor to minimize risks by using strong authentication processes and payment best practices. If you follow these practices closely and make sure your staff does too, you can reduce payment fraud as much as possible.
When payment fraud occurs, and you must follow up with payment processors, the payment company will hold you responsible for investigating the payment and providing us with specific reasons why it is considered to be fraudulent. By closely following payment best practices, we can help you minimize payment requests that are likely to be reversed in the future.
If you would like to find out whether you qualify for a payment processor with Uqualify fill in our quick three-step application form and a representative will contact you straight back. Apply Now