The New Approaches in The Fight Against Digital Payment Fraud

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Digital adoption has been on an exponential rise in the past decade, but the pandemic saw it surge dramatically as many businesses moved online. The growth of online payments came with new kinds of fraudulent activities as bad actors became more sophisticated. Many companies are investing in improved digital experiences to give customers what they need. However, a majority of e-commerce websites struggle to manage fraud cases. Merchants have to deal with varied fraud attempts, ranging from wire transfer scams to phishing. When running an e-commerce business, you should know how to secure your payment processing with the latest techniques.

How Do Digital Payments Work?

Transactions conducted electronically qualify as digital. It means the payments don't involve the exchange of cold cash. Both the payer and payee transfer value from one account to another using an electronic device. Digital payments can be in-person or online. In an era where global business is undergoing digital transformation, payment processing that caters to electronic transactions is a must-have. Most consumers prefer to pay digitally because it is efficient, fast, and convenient.

Accepting electronic payments lets your e-commerce business reach a big audience because the options provide frictionless experiences. You also don't have to worry about managing cash. Processing digital transactions involve several steps and intermediaries. The customer must have a bank account from where payments are debited, while the business needs a merchant account to receive the money. In credit card payments, for example, the buyer swipes or taps on a card reader, sending the information to the payment gateway, which in turn, forwards the request to the customer's bank. If the request is approved, the issuing bank sends the funds to the merchant. Digital transactions can be mobile wallets, UPI, or POS, to mention a few.

Common Payment Fraud Types

Payment fraud involves the use of fraudulent information to carry out transactions. Both customers and enterprises can be victims. As you set up your payment processing, you should comprehend the different fraud elements you might encounter. Identity theft is widely popular. It entails stealing personal and financial details. In most cases, it involves the theft of credit card data. Identity thieves can use stolen cards for purchases. If the victim becomes aware of the fraudulent payments, they will report it, leading to chargebacks on your end.

Phishing is another attack plaguing online payments. Malicious actors use fake messages to trick individuals into revealing sensitive information. Phishing scams can get away with bank accounts, credit cards, and personal details. The most common phishing attack is via email, although SMSes are popular too.

Friendly fraud comes from your customers. A buyer can pay for a legitimate purchase with a credit card but later complain to the issuing bank, triggering a chargeback. Customers commit friendly fraud by claiming products were not delivered or returned without refunds. However, not all chargebacks are fraudulent. Hence, you must know how to separate legitimate cases from false ones.

Merchant identity fraud involves bad actors setting up merchant accounts and using illegally acquired business ID information. So, they appear as legitimate businesses. Then, the criminals charge credit card payments to this account. The real company is left to deal with the mess of customer complaints, chargebacks, and fraud allegations.

Common Payment Security Tools

Whether supporting offline or online payments, ensure your system has effective security measures or protect the business and customers. The type of business you run determines the safety protocols to implement. Credit cards require some of the highest security standards. For one, your payment processing must be PCI-compliant. The Payment Card Industry standardises data security globally. Any entity that processes, transmits and stores card information must comply with PCI-DSS requirements.

These standards prevent fraudulent transactions through tokenization, address verification service, and SSL protocol. Tokenization converts payment details into strings of characters, negating the need to handle sensitive cardholder data during every transaction. AVS is a tool that verifies that the address provided at checkout matches that of the cardholder. SSL encrypts all data passing through an eCommerce site. Therefore, customers can make online payments without worrying about unauthorised parties intercepting their information.

3D Secure is another approach used to counter fraud. The process uses over 100 cardholder data points to evaluate a transaction and determine its credibility.

The Newest Approaches for Fighting Payment Frauds

Growing digital adoption fueled the spike in new forms of fraud, reinforcing the need for effective fraud protection measures. Organisations must be ready to deal with fraud threat vectors such as cybercriminals, organised criminals, and nation-state actors. Businesses should be more proactive in developing effective fraud management strategies that not only focus on the brand but on maintaining a positive customer experience as well. A solid plan involves deterrence, prevention, detection, investigation, and dispute handling. 

Payment processors and other players are getting innovative in reducing fraud cases. AI and machine learning are two approaches helping enterprises monitor transactions and weed out suspected fraud attempts. The technologies make it easy to analyse payment history and pinpoint fraudulent patterns. Blockchain payments are other solutions businesses are trying to decrease fraud incidents. Using distributed ledger technologies allows payment processing without the risk of chargebacks.


Digital payments changed how businesses operate. They allowed quick, painless, and convenient transactions, both online and offline. However, the increase in the use of electronic payments continues to expose businesses and consumers to different kinds of fraud attacks. Criminals are coming up with more creative ways to steal from individuals and enterprises. So, the demand for fraud prevention is high. As a business owner, understand the vulnerabilities in your payment processing and find the most appropriate solutions to protect your brand and customers.

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