• Gergo Varga, Product Evangelist at SEON


• 29.06.2022 09:30 am
#fraud #security

Our world is becoming more and more digital every day. People spend more time online utilizing it for different activities, from studying and shopping to working and entertaining. And individuals are not the only ones; businesses are closely following suit. They have embraced digital transformation and started transferring their business operations online. Not only can they reach more people this way, but they can even find completely new markets. But, the online world is not without its dangers. Cybercriminals and fraudsters use this growing online presence to conduct malicious activities and reach more victims. Even though cybercrime and fraud are not new concepts, sadly, not every business is equipped to deal with them yet. This needs to change sooner than later if you want your business to remain successful. 

Photo: Pixabay

The new reality of cybercrime and fraud

Fraud has always been present in our lives since the first time malicious actors realized they could exploit other people and businesses for their own gain. While in the past, fraudsters were limited and their attacks took place on smaller scales, things are quite different now. With the development of technology and our growing online presence, fraudsters have access to more victims than ever. Today, their attacks are taking place on a much larger scale, targeting individuals, businesses, infrastructure, and even governments, causing significant damage. 

While every business sector is in danger of becoming a victim of fraudulent actions, the financial sector, especially eCommerce, is at higher risk than the others. Fraudsters have always been attracted to financial gain, and businesses dealing with money and confidential information allow them to double their profits. Payment fraud is a common name for different types of fraud that happen when a malicious actor gains access to another person's private payment information and uses it for unauthorized transactions. Payment fraud is a complex threat, as it comes in different forms making it harder to detect and prevent. Detecting fraud before it happens is the only way to keep your business safe, which is why vigilance is critical.

According to a report from the Association of Certified Fraud Examiners, organizations lose 5 per cent of their revenue to fraud every year. That per cent will continue to increase with fraudsters continuously coming up with new attacks. While we know how fraud or cybercrime can have a financial impact, the consequences are so much greater, from causing reputational, emotional, and environmental damage to posing a risk to public health and safety. Traditional fraud prevention methods are no longer enough. Fraudsters keep using technological advancements to improve their malicious actions, and any company that wants to remain in business should do the same.

Most common types of payment fraud

To better understand the importance of efficient payment fraud detection methods, we should start by familiarizing ourselves with the most common risks. The first step in any strategy should be knowing which dangers we might face and why we must defend ourselves from them. 

1. Card-Not-Present (CNP) Fraud

Card-not-present fraud happens when fraudsters use stolen credit card details without having a physical card present. They use various means to steal credit card details, from phishing attacks to data breaches. After they get credit card details, they use them to make fraudulent purchases, resulting in a chargeback request by the legitimate card owner once they discover an unauthorized transaction.

2. Chargeback Fraud

This type of fraud happens when a customer requests a chargeback even though they have actually purchased the product or service. It might be because they have forgotten they have made a purchase or didn't recognize the merchant's name on their bank statement, but in all cases, the end results are the same for the merchant. Not only do they lose the revenue from the sale, but they also have to pay for chargeback fees and admin costs. 

3. Account Takeover

Fraudsters use this type of attack to access the user's accounts and use their payment details to purchase goods and services. According to research, in 2021, account takeover has increased by 90% compared with 2020. This type of attack is extremely hard to detect with standard fraud prevention methods, as all transactions are made from a legitimate account.

How fraud prevention strategy helps businesses

While preventing fraud is one of the main benefits of implementing an effective fraud prevention strategy, businesses can benefit from it differently. 

1. Detecting fraudulent attempts

Modern fraud prevention tools that implement machine learning, such as browser fingerprinting, can detect fraudulent attempts in real-time, stopping them before they cause any damage. They work by gathering more information about the users and using that knowledge to predict their behaviour and recognize any discrepancies indicating malicious actions.

2. Increasing sales

You might wonder how this is possible, but it is quite simple. Gathering more information about the user makes it easier to recognize if they are legitimate or malicious and assign them a risk factor. This allows businesses to reduce false positives and accept orders that might've been declined before increasing the sales and revenue. 

3. Reduces costs

Not only does the efficient fraud prevention strategy reduce the number of chargebacks businesses need to deal with and costs related to them, but it also reduces other business operations costs, such as the ones connected with manual review processes. 

4. Ensures AML/CFT compliance 

Different fraud prevention methods such as identity verification and a regular check for data breaches ensure your business complies with AML/CFT regulations and reduces the risk of being involved in something illegal. 

Conclusion

In the past, fraud detection solutions weren't as effective. Fraudsters would be long gone before they even noticed there was an attack. To combat fraud effectively, something needed to change. New, modern payment fraud detection strategies have been developed combining machine learning, data science, and statistical analysis that allow businesses to continuously monitor the transactions and detect the risk in real-time. Best of all, these modern fraud detection tools will benefit different areas of the company if implemented correctly. The most important thing we all need to remember is that cybercriminals and fraudsters are constantly coming up with new tactics, and if you want your business to grow, you need to do the same. Stay informed about the latest attacks and emerging fraud prevention strategies, and protect your business.