How payment providers can reduce fraud risk for merchants

The global eCommerce market has experienced exponential growth over recent years and is set to reach a market volume of $6.3tn by 2027. However, with more transactions and more customers ordering through e-commerce sites every day, the risk of fraud increases too.  

With a multitude of rising concerns threatening consumers and merchants, payment providers have a crucial role to play in supporting merchants to mitigate the risk of fraud. 

What are the emerging risks? 

We’ve seen the rise of card-not-present (CNP) fraud in recent months and years, with the method likely to surge by 40% by 2026. Regulatory interventions such as Secure Customer Authentication (SCA) in Europe have made somewhat of a difference in reducing risk, but chargeback fraud as a result of CNP payments remains a key challenge. This is especially true for merchants dealing in high-value physical products, such as electronics or jewellery.  

Methods for minimising risk 

The top three methods for reducing potential fraud risk for merchants include harnessing the power of data, maintaining robust compliance and leveraging the latest technology. 

• Harnessing the power of data – both merchants and payment providers collect huge amounts of data every day - whether that be around how users interact with websites and apps, specific payment methods which are most favoured in particular regions, the most popular times of day for purchases, or something else. This data is crucial for fraud prevention measures, as it can be used to inform strategies by identifying patterns and anomalies, for example. What's important is that merchants and payment providers work closely together, to collate this data and create a more informed, accurate picture.  

• Maintaining robust compliance – particularly as the space is ever-changing, we’re seeing industry standards and regulations evolving and being introduced regularly. Paying close attention to these nuanced regulations is crucial for combating fraud, as they often inform best practices. Understandably so, merchant businesses often lack the expertise or know-how about payments and financial regulation, so their payment providers can play a pivotal role in helping them navigate changing regulations, offering guidance and adapting services accordingly. This collaboration is even mandated by some regulations, such as the PSR's reimbursement requirement for APP fraud and the Payment Services (Amendment) Regulations 2024, which necessitate collaboration between merchants and providers to ensure compliance and leverage new rules for business benefit. 

• Leveraging technology – as we see more technological advancements in the finance space, we’re also seeing the rise of emerging tech for fraud detection, most notably AI and machine learning. AI can be harnessed to detect patterns, anomalies and unusual behaviours in the vast amounts of data collected by merchants and their payment providers. The technology then also has the capability to predict potential fraud ahead of time, assign risk scores to certain scenarios and authenticate identities. The proactive nature of AI allows for real-time detection and adaptation to potential threats. However, the collaboration between humans and tech remains crucial for fraud mitigation, and the two should work hand in hand. 

Collaboration is key 

There is one crucial theme that runs throughout all risk mitigation strategies: collaboration. Specifically, collaboration between merchants and their payment providers

Payment providers can be trusted allies and strategic partners, as they give merchants the necessary tools, know-how and support to navigate the often complex and ever-changing e-commerce landscape.  

Collaboration between merchants and payment providers can change the course of the e-commerce landscape, reducing pressure, and financial risk that individual merchants face and enhancing transparency and protection for customers. Utilising the vast amounts of data they collect, monitoring regulatory changes closely and keeping pace with cutting-edge technology, while working closely together, can allow merchants and payment providers to create a safer, more robust e-commerce ecosystem for all.