Payment fraud is bad news for business. From lost sales to reputation damage to lower buyer trust, fraud can disrupt businesses that are caught unprepared. Hence, as a business owner, you must take necessary steps to detect and prevent fraud on time. Payment fraud has risen, more so since the pandemic started and more people started shopping online for everyday needs. A study from Europe shows that the UK faced the brunt of online fraud in 2020 – an estimated £376.5 million. And, other countries across the EU didn’t fare much better.
So, what is payment fraud?
Payment fraud is when a person uses stolen payment credentials to initiate a payment with the intention to commit fraud. Fraud has got sophisticated over the years, with newer forms emerging as technology evolves. But businesses have more power to protect themselves by building an effective risk management strategy.
But, how do you do that?
Typically, in their fight against fraud, many businesses prioritize security over customer experience. This leads them to set over-strict rules or risk strategies that can block out legit payments from genuine customers. This leads to a lot of friction and frustration, leaving customers unhappy with the shopping experience. Hence, you must set up optimum settings to stop actual fraudulent transactions without declining legit ones. Every business is different, and so are their needs. Hence, we lay out some steps to help you design then best strategy to detect and prevent fraud.
How to Detect Fraud
First, you must learn to recognize your genuine customers and spot fraud actors across all your sales channels. Modern fraud detection technology can help you do this. Fraud detection tools analyze historical data from across platforms and channels to detect anomalies in behaviour patterns. This helps them pinpoint fraud and determine which customers are genuine and which are not. These tools can be configured based on high-risk segments or geographies with higher fraud rates.
How to Prevent Fraud
1. Use AI and machine learning tools
AI-based risk management tools use machine learning along with risk knowledge to detect and prevent fraud more effectively. A business can create risk profiles to automate part of the risk assessment process, thus saving you time and reducing manual efforts.
2. Create customizable risk rules
Different businesses face different types of risk, based on their industry. By setting customizable risk rules, a business can design risk profiles that are tailored to their industry and risk type. These rules can then be used to review if a transaction is legit or fraud and decide whether to approve or decline the payment.
3. Strong Customer Authentication
Identity theft is a common method used by fraudsters. Hence, strong customer authentication is mandatory as per the revised Payments Services Directive (or, PSD2) in Europe. Using tools such as 3D Secure 2 helps you verify and make sure that a customer is genuine. 3DS2 uses multi-factor authentication, wherein a customer must verify their identity using two out of three factors – a password/ PIN, a mobile phone, and a biometric scan (such as fingerprint, iris scan).
4. Manually review high-value transactions
High-value transactions or transactions in high-risk markets are more at risk from fraudsters. Hence, such transactions should be reviewed manually to add an extra layer of fraud protection and avoid chargebacks.
5. Test your risk strategy to improve fraud response
In order to understand if your risk strategy is effective, you must test it. Configure different risk settings and A/B test them against each other to understand what works for your business so that you are on alert and well prepared. This helps you optimize your risk setup, 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.