The five types of payment fraud to watch out for

payment fraud

Payment fraud is a growing concern for businesses, merchants and consumers in the era of e-commerce. With an estimated loss of $41 billion from e-commerce payment fraud globally in 2022, this number is set to increase as online and digital transactions become the preferred payment channel.

This type of fraud occurs when an illegitimate owner or holder of a payment technology or instrument like a credit card initiates an unauthorised or swindling transaction.

In our recent webinar, we explored some strategies for businesses to protect customer data and ensure compliance. Here below, we go back to the basics as we explain the top five common types of payment fraud to watch for and how to guard you and your business.

Credit card fraud

We use credit cards almost daily to perform transactions. This has made the payment medium an easy target for fraudsters. With this form of payment fraud, the thief steals the credit card details or the target’s private information. Here is how it occurs:

If a thief steals your card details, they will use it to make a purchase, leading to the loss of the funds. In the latter, a thief will use your private details to open a new account. They then use the card to impersonate and commit fraud, most of it happening against the issuing entity, like a bank.

The susceptibility to credit card fraud mandates individuals and businesses to implement control measures and safeguards. Secure payment processing technology is the first layer of defence to prevent the loss of card details or an individual’s specifics. For example, at Novatti, we use a secure payment processor to ensure payments are made on a secure Level 1 PCI DSS-compliant system.

We also recommend behavioural analytics that flags suspicious activity, like multiple accounts and transactions. You should also put in measures to verify and authenticate transactions to counter credit card fraud.


Phishing fraud

Have you ever received a text message from your “service provider” offering to solve an issue with your account? The dubious provider will then insert a link for you to follow to get assistance. This is among the many ways phishing occurs and could be an attempt to steal your personal information to commit fraud. Thieves may also contact you through email and telephone for the same end goal. Do not fall into their trap!

Do not open suspicious emails, texts, or related requests. If you are doubtful, check whether the contact address is precisely the same as that of your service provider. You can as well contact them for a cross-check. We recommend you to guard against personal and sensitive details like PINs, no matter where the request comes from.


Account takeover

This form of payment fraud occurs when thieves gain access and change the details of the owners’ accounts. The fraudsters can take over credit cards, e-commerce, and bank accounts. 

Attackers take advantage of illegitimate entry to conduct fraudulent transactions. They can also steal other sensitive information like social security numbers and link it with the victim’s personal details to commit other forms of fraud.

Account takeover fraud is preventable through account verifications when details are changed. Timeline visualisations can also help merchants and businesses detect and flag unusual behavior and prevent account takeover.


Triangulation fraud

Fake online stores and websites are becoming a new source of fraud threats through triangulation. A fraudster creates a fake website that entices potential victims through offers, low prices, and many more. The shoppers try to accept the offer and supply personal information like credit card details. The fraudster takes advantage of the unsuspecting buyers to buy items for themselves or steal the card details.

Fraud detection tools can help organisations spot illegitimate sites and report them. It is also best practice for organisations to educate their customers on what information they request to customers to help them prevent falling victim to fake website offers.


First Party Fraud

Also known as “friendly fraud”, First Party Fraud payment fraud occurs through chargebacks. This is a much more common form of fraud with banks and online payment channels. After making a purchase, the customer contacts their service provider, such as a bank or digital wallet, to initiate a chargeback. They may claim they have not received the goods ordered or that they came defective. That leads to losses by the merchants where the transaction was conducted.

Chargeback fraud is a significant concern since merchants rarely initiate follow-ups or cannot authenticate customer claims. We recommend having clear refund policies that detail how and when a customer can claim a refund. Merchants should also use reputable service providers and shipping services. The truth is that you can initiate a dispute with a service provider that is willing to listen and follow up with the customer before initiating a chargeback.


Novatti offers a chargeback guarantee

Are you worried about payment fraud? At Novatti, we provide a secure, end-to-end payment solution for domestic and international transactions. Whether you are an e-commerce business, or a brick-and-mortar store offering digital payments, you can enjoy a variety of checkout and payment methods with Novatti. We have also incorporated a data-rich dashboard where e-commerce stores can view online and offline sales, performance, and other valuable business insights. 

What’s more? Novatti PayProtect offers merchants a chargeback guarantee to ensure you get your money back from fraudulent chargebacks. Using machine learning to detect and counter the chargebacks, our service allows you to focus on approved orders that increase your bottom lines. 

For more information, visit our payment processing page or contact [email protected]

Kian Jackson

Kian Jackson

General Manager - Merchant Acquiring

Leave a Comment

Who We Are

Novatti enables businesses to pay and be paid, from any device, anywhere. From corner stores and startups to global organisations, our solutions will unlock your ambitions.

Recent Posts

Sign up for our Newsletter

Wordpress Social Share Plugin powered by Ultimatelysocial