The key types of digital payments fraud, ecommerce risk management tactics, and the tools to fight back 

When it comes to digital payments, ensuring that all genuine transactions are processed smoothly while avoiding fraudulent ones can feel like a constant battle. As preventative technology evolves so does fraud, which is why constant vigilance is so important.

According to a survey carried out by the Merchant Risk Council (MRC), 41% of respondents said that they felt just as, or more vulnerable, to fraud then they did 12 months ago. As past scandals have shown, the repercussions of fraud go beyond the financial impact to damage reputation and consumer confidence.

Fortunately, this is avoidable. The right partner will be able to reduce fraud by helping you decipher the fraudulent transactions from the legitimate ones.

But first, it’s important to understand the different types of digital payments fraud, and the technologies that can be used to fight it without impacting authorisation rates, i.e. stopping good transactions from your shoppers. There are a multitude of different types of fraud that can affect businesses. Here are some of the more notable ones:

  Friendly Fraud

It’s not as friendly as it sounds. So-called Friendly Fraud is when a fraudster purchases goods online and then initiates a chargeback once they’ve received the goods. To combat this, it’s important to ensure your risk system can identify patterns and spot serial friendly fraudsters. For example, those that have initiated multiple service-related disputes across a few different cards and identities. Another line of defence is blocked lists, or 'referral lists' to stop known fraudsters returning.

Takeover Fraud

 This uses a combination of phishing and identity theft tactics. Fraudsters create a website that looks like a legitimate brand so they can steal the credentials of unsuspecting shoppers for future attacks. Account takeovers can also happen on websites where shoppers already have an account with saved payment details. You can combat takeover fraud with a flexible system that allows for additional risk fields. By providing additional data, such as account creation data, the risk system can build more accurate shopper profiles. This makes it easier to distinguish between fraudsters and genuine shoppers.

Refund Fraud

Today there is such a thing as a professional refunder. They make money by setting up websites that offer refund services to individuals. Once they're contacted by a legitimate shopper, they contact the merchant posing as this shopper and request a refund which (of course) they keep. A way to avoid this is to ensure your risk system has access to data across all your channels. This makes it possible to view the lifecycle of a shopper and check past orders to identify possible refund fraud.

Finding the right balance with data 

Fraud is a pain for any business and as your business grows, the threat increases. The natural temptation is to turn up the dial on the risk settings, however while this will block fraudulent behaviour, it can also block genuine customers. Research found that 24% of businesses reported that over 10% of the transactions they rejected were legitimate shoppers. This doesn’t just translate into lost sales but can impact consumer loyalty. The trick is to find the right balance between security and your conversion rates and the richer your data, the better. That’s why risk systems are most effective when they are populated with data from multiple sources. This helps the system spot patterns and ultimately identify fraudsters. In the same way, loyal shoppers can be recognised and rewarded with a simplified payment flow. Which brings us on to:

Dynamic 3D Secure 

3D Secure is the step in the payment flow when an online shopper is redirected to a Visa Secure or Mastercard Secure Code page. Adopting this approach shifts the liability to the card issuers. However, it can affect conversion rates, especially on mobile. The best approach is to use Dynamic 3D Secure. In this case transactions are assessed in real-time and only those that fit an agreed criterion will be diverted to 3D Secure. With it, businesses can customise their fraud prevention strategy based on specifics like industry, business model, countries of operation, etc. This targeted approach ensures that low-risk transactions can pass unhindered while high-risk transactions undergo further scrutiny.

Final Thought  

Fraud is something that we have seen more frequently in the news during the pandemic. This is because many shoppers have moved online and companies and consumers who aren’t familiar with online fraud tactics are vulnerable to attack. Payment companies are often equipped with sophisticated fraud management solutions that can help protect businesses and their customers. However, regardless of the risk management solution in place, it’s important to stay on top of fraud trends. This will help safeguard your business while ensuring you continue to deliver a frictionless experience to your genuine shoppers.