Recognizing and Managing Payment Fraud

by Sahil Verma SIFIPAY

Payment fraud occurs when a credit card is used unauthorized. Individuals' personal information can be obtained by cybercriminals through social engineering, purchasing leaked information on the dark web, or conducting data breaches.

While individuals must deal with the unintended consequences of identity theft perpetrated by cybercriminals, businesses may also suffer. In addition to losing their inventory, they may be responsible for covering the criminal's credit charge as well as paying the chargeback fees to the card brand.

Types of Payment Fraud

Unfortunately, there are numerous instances of credit card fraud. These are the different types of credit card fraud that ISVs should be aware of.

Card-Not-Present Fraud

A card-not-present (CNP) transaction occurs when a customer does not physically hand their credit card to a merchant in order for them to swipe, insert, or enter their credit card information. Online and mobile orders, as well as phone and mail orders, are examples of CNP transactions.

A credit card number, CVV number, and billing address are required to process a payment through an online payment gateway. Card-not-present fraud is on the rise, owing to the absence of the usual safeguards of employees checking customer photo IDs or verifying signatures for physical credit cards.

Cybercriminals can obtain payment information by hacking well-known companies or using phishing techniques on individuals. Because the victim's physical credit card is still in their possession, they may be unaware that their data has been stolen, allowing criminals to get away with this type of theft before the consumer realizes they are a victim of credit card fraud.

Consumers are not liable for unauthorized transactions made using a stolen credit card number. The burden, however, is on merchants to demonstrate that an order was placed by an actual customer. If they are unable to do so, they may be held liable for the costs.

Friendly Fraud

When a customer makes a purchase but later disputes it, this is referred to as friendly fraud. They may make the following claims:

  • The product was never delivered to them.

  • The product received was not what they had hoped for.

  • They returned the product but were never refunded.

  • Even though they canceled their order, it was still delivered to them.

  • They have no recollection of ordering the product and suspect fraud.

In some cases, the claims made above may be true. However, some dishonest customers will use this as an excuse to file a chargeback claim in order to get their money back (and the item for free).

Account Takeover

When a cybercriminal obtains credentials to access a legitimate customer account, such as a bank account, email, or eCommerce login, this is referred to as account takeover. According to one study, account takeover fraud is up 72 % year on year.

Once the cybercriminal has access, they can change account information and login credentials, effectively locking out the legitimate account owner. They could also use the account number and other stored credit card details to order goods or sell the information to another party.

Cybercriminals can escalate this type of fraud by placing high-value or bulk orders, as well as taking advantage of "buy online, pick up in-store" (BOPIS) options, which have historically had fewer security hurdles.

Trends in Payment Fraud 

Digital Payments

The Covid-19 pandemic may be partially to blame for the rise in digital payment fraud. With social distancing and lockdowns in place, eCommerce sales increased 31.8 % quarter over quarter. While this resulted in significant growth in digital payments, it also provided cybercriminals with more opportunities to gain unauthorized access to credit card details and exploit them. According to a report, mobile device fraud attacks have increased by 48%.


Because of the shift to working from home, some businesses have seen an increase in payment fraud attempts. According to the 2021 Survey Report, the lack of face-to-face communication and adjusted signoff approvals prompted fraudsters to investigate ways to exploit these flaws through social engineering. According to reports, business email compromise (BEC) was a primary method used by cybercriminals to attempt payment fraud, with 62 % of surveyed organizations reporting attempted or actual payment fraud via BEC.

Synthetic Identity Fraud

Synthetic identity fraud differs from traditional identity fraud in that cybercriminals create a new identity using a combination of true and false information. Unfortunately, children and the elderly are frequent victims of this type of fraud.

Credit card fraud detection can also be hampered by the use of forged identities. It can take years for cybercriminals to build up their false identity before making fraudulent charges, maxing out their credit cards, and then abandoning the identity, leaving financial institutions or card issuers on the hook.

Payment Fraud Management

There is no guarantee that any entity will be able to completely eliminate payment fraud. However, ISVs must ensure that their software is PCI compliant in order to reduce the likelihood of a credit card data breach. Failure to do so can be costly for businesses, resulting in exorbitant fines, revenue loss, potential lawsuits, and tarnished reputations.

By doing the following, online payment gateway India systems can begin to reduce the likelihood of payment fraud for their customers:

  • Recognize the organization's PCI DSS scope. This ensures that areas and systems containing cardholder data are appropriately secured.

  • Once you understand the PCI scope, look into ways to reduce or eliminate the PCI scope.

  • Tokenization and encryption protect customer data from unauthorized access.

PCI compliance can be challenging, but ISVs do not have to do it alone. Instead, they can collaborate with a reputable payment processor to integrate a secure and dependable payment option into their software.

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About Sahil Verma Advanced   SIFIPAY

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Joined APSense since, August 27th, 2021, From Ghaziabad, India.

Created on Jun 21st 2022 05:08. Viewed 67 times.


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