E-commerce is growing rapidly throughout Europe, but so is online fraud. Juniper Research reports that global fraud losses will amount to USD 48 billion in 2023, with Europe making up 26% of global fraud losses. Europe saw a 350% increase in e-commerce fraud in 2021. That isn’t good news for merchants in the region. The explosive growth of digital payments and cryptocurrencies, along with the rise of omnichannel shopping and social commerce, has made businesses and consumers more vulnerable to fraud. As more folks switch to online payments, bad actors are finding more sophisticated ways to commit fraud. Hence, it is critical for e-commerce merchants to adopt preventive measures to ensure their customers and business remains safe. Fortunately, fraud prevention tools are available to help you thwart fraud, keep customers safe, and build a solid brand reputation.
What is a Payment Fraud Management Tool?
Fraud management tools are systems or programs that help merchants track, detect, and block fraudulent purchases. They may do this by effectively confirming the customer’s identity to ensure it is a legit shopper or by analyzing transactions for indicators of potential fraud. Businesses use them to detect and prevent fraudulent transactions, protect against financial losses, and comply with industry regulations. But while choosing your fraud management tools, take care to strike a balance so that you don’t add too much friction in the checkout process. There is a risk you could block legit transactions and turn away genuine customers if your security levels are set too high.
What are the benefits of using fraud prevent tools
Fraud prevention tools help you:
- Reduce financial losses by detecting and preventing fraudulent transactions.
- Improve customer experience by reducing false declines.
- Comply with industry regulations such as PCI DSS and PSD2.
- Reduce risk by identifying potential threats on time and take preemptive action.
What are the types of fraud prevention tools?
There are several types of fraud prevention tools for your risk setup. Here’s a look at the ones you need to secure your payments:
1. Rule-based Tools
These tools use pre-defined rules and algorithms to identify and flag potentially fraudulent transactions. They use rule-based risk scoring to generate a risk score for each incoming transaction, based on past experiences of fraud. High-risk transactions are rejected or sent for manual review. You can customize risk rules to suit your industry or business type. These rules help a merchant review if a transaction is legit or not, and decide whether to approve or decline a payment.
AI-based fraud management tools use machine learning to generate this ruleset automatically. They analyze a merchants’ transactions records and generate a ruleset that would most effectively flag fraudulent transactions without generating false positives.
2. Machine Learning
AI-based risk management tools use machine learning along with risk knowledge to detect and prevent fraud more effectively. They use advanced algorithms and statistical models to learn from historical data and identify patterns that may indicate fraud. A business can create risk profiles to automate part of the risk assessment process, thus saving you time and reducing manual efforts.
3. Behavioural Analysis
These tools help you analyze the behaviour of users and transactions to identify patterns that may indicate fraud. Behavioural analytics map transactions in real-time and identify any deviations from usual behaviour. This helps merchants to track transactions in real-time and take action in case of any suspicious behaviour or threats.
4. Biometric Authentication
Identity theft is often used by fraudsters. To protect customers, laws in Europe such as the revised Payments Services Directive (or, PSD2) make secure customer authentication mandatory.
Biometric authentication is a way to verify a user’s unique identity by evaluating one or more biological identifiers such as fingerprints, iris/ retina patterns, or voice. Biometric data is unique to every user, and hence cannot be copied, changed, or replicated. Hence, they are a stronger safety option rather than, say a password.
Tools such as 3D Secure 2 use multi-factor authentication and biometrics to verify a customer’s ID using two out of three factors – a password/ PIN, a mobile phone, and a biometric scan (such as fingerprint, iris scan). Only after the user provides these details does the payment get approved. This added layer of security helps to reduce fraud, while shoppers can enjoy a safer buying experience. 3D Secure helps merchants meet all SCA requirements and remain compliant.
5. PCI DSS compliant payment gateway
A PCI DSS-certified payment gateway is essential before you start accepting payments. It is your frontline of defense against fraud, hence you can’t do without it. Plus, laws in Europe require you to have a PCI DSS certification if you store and process customer payment data. Using such a payment gateway helps you comply with global payments regulations.
Speak to your payment service provider about how to add one to your online shop, if you don’t already have it.
To ensure your risk strategy is effective, you must test it. Set up dynamic risk settings and test them so that you can figure out what works for your business. An optimized risk setup will help you increase your payment authorization rates and reduce chargebacks.
How can Novalnet help?
As a global PSP, Novalnet understands your payments-related challenges and help you address them. We can help you securely process payments in a PCI DSS-compliant environment. Our state-of-the-art technologies – from instant payment plug-ins to AI-based risk management tools – have been helping Europe’s leading brands solve complex payment challenges and delight customers. Reach out to us today to know more.
Gowri Shankar is the IT Application Security Manager at Novalnet with versatile knowledge in Programming and System/Security architecture. Having 11+ years of experience in the financial services industry, Cybersecurity, Payment Card Industry Data Security Standard (PCI DSS). Certified in Advanced Payment Card Industry Security Implementer (CPISI 2.0), Secure Software Lifecycle Professional (CSSLP) from (ISC)².