How Payment Fraud Threatens the Future of Digital Business: What You Need to Know

Having a digital footprint for your business has become a necessity for any business to survive. 

After the pandemic, there has been a drastic shift for businesses shifting from brick-and-mortar to digital. 

This digital shift has also caused a buff in digital payments. As per Statista- the total transaction value is expected to show an annual growth rate (CAGR 2025-2029) of 15.90% resulting in a projected total amount of US$36.75tn by 2029.

That’s huge. Isn’t it?

But.

 This surge in digital transactions also opens up new avenues for fraudsters to exploit weaknesses in payment systems with payment fraud.

The Growing Threat of Payment Fraud:

Where there’s money, there’s fraud – it’s almost as if fraudsters have a sixth sense for sniffing out an opportunity.

Regrettably, with over $18 billion worth of digital transactions occurring every hour globally, the digital payment industry is becoming an appealing target for fraudsters, as more digital payment methods mean more opportunities to exploit vulnerabilities. 

Do you know that the cumulative losses in online payments due to fraud are expected to amount to $343 billion for merchants between 2023 and 2027? (Source: 2023 Global eCommerce Payments And Fraud Report)

The surge in online transactions has widened the playing field for fraudsters to exploit weaknesses in digital payment systems, putting both users and platforms at greater risk.

From the perspective of digital businesses, payment fraud is worse.

It impacts businesses on various fronts —financial losses, reputational damage, and the loss of customer trust. A survey by MRC, Cybersource, and Verifi shows that the percentage of revenue lost to payment fraud globally was 2.9%.

Businesses need to be more vigilant about financial fraud on their platforms and look out for effective measure to tackle it. 

To choose the most effective fraud detection solution, it is very important to learn the types of payment fraud that businesses are experiencing.

Types of Payment Fraud Targeting Digital Businesses:

After careful consideration we  have narrowed down to these four major types of fraud that are prevalent in today’s world:

• Credit Card Fraud: Card-not-present (CNP) fraud is particularly prevalent in online transactions.

• Account Takeover: Fraudsters use stolen credentials to gain access to customer accounts.

• Chargebacks: A growing problem for digital merchants, with consequences like lost revenue and high fees.

• Friendly Fraud: A type of chargeback initiated by the legitimate cardholder, which can be challenging to detect.

Other than these there are newer forms of fraud involving emerging technologies like cryptocurrency or digital wallets. Some of them include

• Cryptocurrency Phishing Scams: Fraudsters create fake crypto exchanges or wallets to steal users' private keys or login details.

• Rug Pulls in DeFi: Scammers develop fake DeFi projects, attract investment, and then withdraw all funds, leaving investors with worthless tokens.

• Fake Digital Wallet Apps: Fraudsters create counterfeit wallet apps that steal users’ private keys or login credentials when accessed.

Now that we've discussed the various types of digital payment fraud, let's explore the impact they can have on digital businesses.

The Consequences of Payment Fraud for Digital Businesses:

Payment fraud is detrimental to businesses, undermining their entire foundation if not identified and addressed promptly. The consequences of payment fraud can be both direct and indirect, such as:

• Revenue Losses: Direct fraud-related losses and chargebacks.

• Increased Costs: Higher processing fees and the cost of fraud detection and prevention systems.

• Damage to Brand Reputation: Losing customer trust can have long-lasting effects on business success.

• Operational Disruption: Dealing with fraud-related disputes and investigations can take up valuable resources and time.

How Digital Businesses Can Combat Payment Fraud:

Offer actionable insights and strategies to help digital businesses protect themselves from fraud. You can suggest:

• Implementing Robust Fraud Detection Tools: Use AI and machine learning based fraud prevention solutions to detect suspicious patterns and prevent fraudulent transactions.

• Adopting Multi-Factor Authentication (MFA): This can help prevent unauthorized account access while keeping the fraudsters from getting access to the platform. This’ll eventually reduce the possibility of fraud.

• Regularly Reviewing Payment Systems: Periodic audits of payment processes as per the current fraud trends and industry standards. Ensuring security measures are up-to-date means keeping the fraudsters away.

• Educating Customers: Encourage customers to use strong passwords. Creating a detailed guide on potential signs of fraud that customers can relate and be cautious of phishing scams can help reduce fraud incidents.

Businesses must be proactive in addressing new forms of digital payment fraud and get in touch with fraud prevention experts to develop strategies for safeguarding against the latest threats.

Conclusion:

Although it may feel challenging to guard against every type of payment fraud, businesses can significantly reduce the risk with the right fraud prevention solution and practices.