From phishing scams and identity theft to card-not-present fraud and account takeover, payment fraud perpetrators employ sophisticated methods to deceive and manipulate unsuspecting victims. Financial institutions, software providers, and merchants must remain vigilant in adopting robust security measures to protect payments data and sensitive cardholder information
Payment fraud continues to be a constantly evolving threat to individuals and businesses. All software companies must have a two-pronged approach to addressing security: proactive and defensive. It’s critical to have systems in place that proactively address your software payment security practices as well as tools that can defend your business and detect fraud quickly.
Your proactive plan should cover everything prior to a payment transaction and a defensive strategy should address all aspects of protection once a payment transaction is in flight through the settlement.
This article will provide you with essential knowledge to recognize warning signs, fortify defenses, and protect against the dynamic threat of payment fraud.
The prevalence of payment fraud continues to grow
According to recent Federal Trade Commission (FTC) data, consumers lost nearly $8.8 billion to scams in 2022, a figure that rose by 30% through 2021. The top types of scams included imposters, online shopping, prizes, sweepstakes and lotteries, investments, business and job opportunities. All of these channels, when set up to scam businesses and individuals, are aimed at collecting either money or sensitive personal information, sometimes both.
Outside of scams, cybercriminals are committing credit card payment fraud at alarming rates. In the first half of 2023, there have been over 53,000 reports of fraudulent credit card payments in the USA, totaling over $123 million. Cybercriminals can access credit card details in a number of ways, including phishing, installing malware or spyware, skimming (stealing card data from offline payment channels), and data breaches. With the increasing sophistication of cybercriminals and the prevalence of payment fraud growing, being both offensive and defensive is the key to protecting your software company and its merchants.
Best practices to proactively prevent payment fraud
Preventing payment fraud should start with a proactive plan including securing your platform from any potential weak points and educating merchants on simple ways to detect fraudulent attempts as well as best practices for accepting payments.
Software companies will want to ensure firewalls and all security systems and processes are current and effective. Other security measures will include understanding the security features you can implement within the software that allows you to protect payment data and identify potential breaches.
Educating your subscribers is also a critical component so they understand what role they play in protecting payment data. Compliance with Payment Card Industry Data Security Standard (PCI DSS), which sets out the standards for anyone who touches payments are a crucial first starting point. Other tools and features will include multi-factor authentication, biometrics, point-to-point encryption, and tokenization.
Educating your merchants about payment fraud risks and prevention measures fosters vigilance amongst your customers. Encourage them to conduct regular risk assessments and make sure you share the tools and features available within your software.
Why fraud detection is also critical
Once your proactive plan is in place, a defensive strategy is also necessary. Your defense strategy should center primarily around fraud detection. Protecting payments starts when a transaction is initiated and flows through the settlement. When you work with a full-service payments partner such as Payrix, there are a number of products that will help you detect and stop fraud. These products identify suspicious transactions and monitor your payments data for out-of-the-ordinary payments.
Examples of what fraud detection tools are looking for:
- Unusual locations and transaction amounts
- Purchases from high-risk countries
- Outlier transaction values or frequencies
These are not a fully inclusive list, and your software platform will likely want strategies in place that also detect dormant accounts, unusual activity from a long-standing subscriber, or other suspicious activity not in line with your typical customer. Working with an experienced Embedded Payments partner is critical to developing and implementing a full payments security strategy.
Protect your platform and its merchants from payment fraud
The growing prevalence of payment fraud makes it critical for your software to be diligent and proactive about protecting your platform and merchants. By working with a full-service payments partner such as Payrix, you will have a dedicated team of experts that will help you proactively prevent and detect payment fraud – from ensuring your payments security is compliant to establishing strong fraud detection systems and processes.
