Dealing with payment fraud: detecting and prevention strategies
Payment fraud is becoming increasingly common in digital economy, and growth and spread of online payment systems only stimulate fraudsters. They are becoming more inventive and taking advantage of the situation where buyer and merchant do not see each other, as would be in an offline purchase. Payment fraud refers to any criminal act that leads to false transactions, theft of property, or theft of personal information. Both businesses and clients can be affected by this event. The goal of fraudsters is not always even funds on the client's card but often the deception of merchants.
However, it is not only fraudsters who are developing and gaining new experience; merchants are also ready to fight fraud and implement technologies to do so. Some of these technologies allow for more effective prevention of fraud, which is the main goal in this endeavor. The fewer cases of fraudulent payments occur, the safer it is for businesses and their clients. Of course, you need to be able to react to a situation that has already occurred, but concentrating on minimizing such risks is the number one priority.
Types of payment fraud
Before discussing how to combat fraudsters, let's look at the main types of payment fraud that online businesses most commonly encounter. These include:
- Phishing: This method of fraud involves deceiving people through emails and messengers posing as online sellers or different services. The goals of such fraud are sensitive data, such as payment data and credit card information. Through similar channels, they also distribute payment links, and inexperienced users may confirm payment to fraudsters immediately. This method is very old but still extremely popular, and even proficient internet users can fall for the fraudsters' tricks. Some links are embedded in birthday greetings or supposedly inform about a gift that is waiting to be received.
- Identity Theft: This type of fraud involves stealing the victim's personal information to make unauthorized transactions. This category includes data breaches, where a hacker can gain access to databases containing customer information. Because of such a risk business must strongly protect their data, and clients must protect their bank cards and passwords along with documents.
- Chargeback Fraud: This type of fraud mainly affects merchants and is committed by dishonest clients. When clients receive a product or service but still dispute the transaction, having goal to receive a refund or even keep the product without proper payment. The main losses come from bank fees for this refund, as well as possibly the entire amount of the purchase. This risk persists in almost any online business that accepts bank cards.
How to fight payment fraud
Fraud is literally inevitable if we are talking about the iGaming business. Such websites attract fraudsters because they provide opportunity to try out many different methods of fraud and get away with it. Gambling websites commonly encounter unauthorized chargebacks, payment deception, identity substitution, attempts to pay a deposit with someone else's card or payment method.
However, with development of technologies, there are many strategies that can be used to create a secure payment processing environment. A combination of them will yield even better results.
Let's consider some of the main methods we recommend:
1. Fraud Detection Software.
Firstly, Monoup experts recommend obtaining good fraud detection software that can analyze data according to given standards. Primarily, we advise focusing on monitoring transactions by user accounts and comparing them with previously made payments. The patterns that you will check can vary and will depend on the specific business and its needs, as well as potential risks. For example, if you process 2000+ transactions per day, manual tracking of problematic or illegitimate payments is simply impossible. This would require, at a minimum, a lot of time. And in conditions of high fraud risk, you don’t have that much time, so the speed of your reaction is important. You can automatically detect payments with a stolen card, and then prohibit them or block the user. This will allow you to save on fines, penalties, and client losses. And all this is done in a moment.
2. Multi-Factor Authentication.
The second method of protecting payments involves using multi-factor authentication (MFA) for accessing a user account on your website. This is usually done within the framework of account management policies, and MFA requires each user to provide another method of identity verification, in addition to logging in, before making an online payment.
Examples include using mobile phones as authenticators or integrating biometrics for secure payment processing. This will help protect against identity theft or account hacking. In the context of online payments, it is very important to ensure that the owner of payment method and the account on the merchant's website is the same person. Otherwise, you may encounter a series consequence of such fraud.
3. Regular Security Audits
The third method we suggest is conducting regular security checks to combat attempts at payment fraud and data integrity breaches. After you have assessed your own risks and implemented security systems on your website, you must ensure their operability.
Internal and external audits can help here. Internal audits are conducted by company employees who know the system from the inside and can check it literally "piece by piece." At the same time, external audits can be ordered from specialized companies and provide an outside perspective and point out moments that you may have missed. When developing a product over a long period, you may miss important things in the constant flow of tasks; therefore, cooperation with external consultants and contractors can be very useful in this area.
4. Implementing KYC and AML
The fourth point on our list is building KYC and AML procedures, which have already become key to customer trust and ensuring secure payment processing. KYC (Know Your Customer) checks are conducted to prevent fraud and confirm that the user is real person, not a bot, and the same person owns the account as stated.
In gambling industry, it is not rare for accounts to be registered with someone else's documents, which directly contradicts a safe environment for play. Therefore, priority of each operator is to identify and exclude such users. This helps prevent cases of money laundering using the gaming platform. AML (Anti-Money Laundering), on the other hand, includes measures taken by banks and online merchants to detect any suspicious sources of income received online and not only. AML also prevents the concealment of income obtained from illegal activities and is mandatory for compliance with international laws and regulations.
5. Using Payment Systems with PCI DSS
Finally, protecting yourself from fraud will be supported by working with a reliable payment provider certified to the PCI DSS standard. This method will be an effective addition to the above-discussed points.
PCI DSS (Payment Card Industry Data Security Standard) is a set of rules governing the process of handling payments data, their storage, and processing for payment providers and even merchants. It is considered mandatory for any business that plans to work with credit/debit cards, such as Visa and/or Mastercard. Payment providers without PCI DSS certification should be avoided or treated with caution. Since in this case, you cannot be 100% sure that your clients' data is stored correctly and there is no risk of leakage.
PCI DSS certifications and compliance levels are based on the number of transactions that need to be processed per year. Therefore, system is quite flexible and convenient for use by different types of businesses. To obtain certification, a payment provider must establish firewalls and encrypted data transmissions to ensure secure payment processing. The process requires protection of client data and sensitive information. Non-compliance with this requirement puts the business at risk of leakage, which in turn will negatively affect customer trust.
Conclusion
Although payment fraud has become more prevalent as more users prefer to shop online, don’t be afraid of accepting online payments. To protect against risks, you have to implement appropriate technologies and not fall behind the industry standards. Assessing the risks of your own business and implementing suitable protective measures is the primary concern if you want to feel stable in e-commerce.
However, coordinating these steps will require cooperation with experts familiar with modern security methods of maintaining safe space of electronic commerce. Monoup has the necessary experience in anti-fraud and online payment security and can offer this service to clients. Contact us via Telegram or email, and we can provide you with more details.
