Why Payment Fraud Prevention?
The sceptre of payment fraud has been ever-present as e-commerce grows. Europe saw a 350% increase in e-commerce fraud in 2021. And as more people switch to online shopping, fraudsters are finding more sophisticated ways to target merchants and consumers. 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.
Hence, it is critical for e-commerce merchants to develop best practices for preventing fraud and use sophisticated fraud prevention tools. But while choosing your fraud management tools, you have to strike a balance between stringent security and 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.
Picking the right tools from the many options out there can be overwhelming. This blog explains what fraud management tools are and how to choose the right one for your business.
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. Fraud management tools come with several layers of functionality and usually include the following features:
• Identity verification: Verifies that a customer is the actual cardholder.
• Data sharing: Shares transaction data with card networks and issuing banks to benefit from their sophisticated fraud prevention methods.
• Rule-based risk scoring: Generates a risk score for each incoming transaction based on past experiences of fraud. High-risk transactions are rejected or sent for manual review.
• Automated risk analysis: Uses AI and machine learning to automatically analyse past transaction data, learn from it, and generate risk scores for incoming transactions based on that analysis.
How To Choose A Payment Fraud Prevention Tool
Merchants face fraud in many forms and from many sources, hence it is critical to ensure you have the essential fraud-prevention features in your arsenal to fight fraud. Here are six features you should consider while choosing your fraud management tools:
1. Device fingerprinting
Fraudsters need a device such as a phone or a computer to commit fraud. Device fingerprinting helps you to track, identify and block the unique device that a fraudster uses to make a fraudulent purchase. This way, you can detect account takeover fraud (for instance, flagging a new device when it tries to log in to a customer account) and blacklist known offenders in a way that is difficult for them to circumvent.
2. Real-time Behaviour Mapping
Real-time behaviour mapping involves the use of behavioural analytics to map transactions in real-time and identify any deviations from usual behaviour. This feature enables merchants to track and correlate transactions in real-time and take appropriate action in case of any unusual behaviour or threats.
3. IP Geolocation Tracking
Geolocation tracking uses a customer’s IP address, GPS, and local Wi-fi networks to generate their exact location. This helps you to know where your traffic and orders are coming from. If you experience higher rates of fraud from specific locations, you can scrutinize these cases more closely and take necessary action.
4. Fraud Risk Scoring
This feature lets you examine transaction data for possible fraud indicators and generate an overall risk score. Basis this score, you can approve a transaction, reject it or flag it for manual review.
Effective risk scoring requires a robust set of rules. AI-based fraud management tools use machine learning to generate this ruleset automatically. They analyze a merchants’ transactions records for both legitimate and fraudulent transactions and generate a ruleset that would most effectively flag fraudulent transactions without generating false positives. Look for a fraud management tool that provides industry-specific risk profiles and rule sets.
5. Velocity checking
Fraudsters often make multiple purchases within a short time before they are detected and stopped. Velocity checking tools identify such fraudulent activity patterns by checking the speed and frequency of transaction attempts. These tools can flag and block multiple purchase attempts that share certain information, such as IP, device fingerprint, or shipping address.
6. 3D Secure
3D Secure is a security process that protects against online card fraud. When a user makes a payment online using a credit or debit card, 3D Secure verifies it using two of three factors:
1. Something the user knows, such as a PIN or password
2. Something the user has, such as a card, token, or phone
3. Something the user is, such as a fingerprint or 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. The latest PSD2 regulations in Europe mandates the use of strong customer authentication (SCA). 3D Secure helps merchants meet all requirements of SCA. Merchants need to ensure that they use 3D Secure dynamically to avoid declining legit transactions.
How Can Novalnet Help?
Novalnet offers AI-powered risk management that helps you to prevent fraud before it happens. Our tailor-made fraud prevention solutions use AI and machine learning to protect your business from any fraudster activity. You can also enable and disable fraud prevention modules as per your business needs. Novalnet’s fraud prevention modules are easy to configure and can be integrated with your business systems easily. This ensures you face zero hassles while integrating fraud prevention tools into your business process.
Fraud management tools can give you a much-needed edge in your fight against fraud. But you have to use them correctly for them to be effective. The right fraud solution will help you address threats specific to your business and should be easy to integrate, use, and update.
The fraud landscape and the tactics used by fraudsters are continuously evolving as the e-commerce landscape evolves. The best way forward for e-commerce merchants is to stay informed and updated about fraud trends and tools and work with the right payments partner who can help them process payments efficiently and stay protected from fraud.
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.