Consumers reported losing close to $8.8 billion to fraud in 2022, an increase of over 30% from 2021, according to the latest Federal Trade Commission data. The top reported frauds included imposter scams, with losses of over $2.6 billion, and online shopping.
For software companies embedding payments into their platform, being aware of payment fraud is critical for several reasons. The most obvious is to protect cardholder data and minimize fraud but understanding payment fraud will help you prevent and detect these threats, helping you to maintain customer trust, financial growth, legal compliance, brand reputation, operational efficiency, and a competitive edge.
Throughout this blog, we delve into what payment fraud is, the most prevalent types of fraud, and introduce payment fraud detection and prevention through the lens of a software company embedding payments into their core product offering.
If you’re new to payments or trying to determine if Embedded Payments are right for you, this blog will serve as a helpful introduction to the evolving payments fraud landscape and what to look out for to ensure your payments data is safe from fraudsters and their sophisticated attacks.
What is payment fraud?
Payment fraud is any activity that manipulates payment systems to access funds or financial information illegally. Real-life examples of payments fraud include identity theft, unauthorized purchases, chargeback fraud, refund fraud, and more. These activities can significantly affect businesses and consumers. To protect payments processed through your platform, you’ll want to stay informed about the latest types of fraud and prevention and detection methods.
Types of payment fraud
There are several types of payment fraud that software companies should be aware of to ensure the safety of their users’ financial and payments data. Below are the most prevalent types. We will discuss how to detect and prevent these types of fraudulent activities in the next section.
- Phishing involves fraudsters using fake emails, text messages, or websites to collect sensitive financial data such as login credentials and credit card details.
- Card skimming occurs when bad actors capture card information at payment terminals, often using a device that is inconspicuously attached to the card reader.
- Identity theft is the result of personal information being stolen and used to make fraudulent purchases or transactions.
- Chargeback fraud is often referred to as “friendly fraud” and occurs when a consumer makes a legitimate purchase with their credit card and requests a chargeback from the issuing bank after receiving the purchased goods or services.
- Business email compromise is a sophisticated attack by fraudsters who target companies that conduct wire transfers. Bad actors typically pretend to be a company executive or supplier to start fraud transfers unbeknownst to the organization.
- Card-not-present (CNP) fraud involves stolen card information being used to make an online purchase without the physical card present.
- Credit card and debit card fraud is straightforward in definition, but complex in detection. This type of fraud involves the unauthorized use of a credit or debit card to make a purchase or withdraw funds.
- Wire transfer fraud involves bad actors starting a wire transfer from a stolen account.
- Check fraud happens when a fraudster uses forged or altered checks to make unauthorized withdrawals or payments.
- Mobile payment fraud involves unlawful transactions made through mobile payment platforms, such as a digital wallet, contactless payment terminal, peer-to-peer transfers (think: Venmo and PayPal), and banking integrations.
Payment fraud detection and prevention for software companies
Understanding the common types of payments-related fraud is essential for ensuring effective fraud prevention and detection in your platform and at your organization. Staying vigilant and aligning yourself with a full-service payments partner, like Payrix and Worldpay for Platforms and our team of experts, can help to ensure you’re properly preventing and detecting payment fraud using a variety of strategies, secure payments products, and techniques.
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