Introduction

Online payments are by far the most popular form of transaction in the world today. This increase in online payments, however, brings with it an increase in transaction fraud.

When faced with increasingly secure fraud-protection systems implemented by much larger businesses, fraudsters begin to target smaller, less-secured businesses to try their luck. However, there are ways to protect your small business from these fraudulent attacks.

In this article, we’ll be looking at some of the avenues through which these fraudsters can attack you, and what you can do to reduce their impact on your business.

What is payment fraud?

Payment fraud occurs when someone steals another person’s payment information and uses it to make unauthorized transactions or purchases. The actual cardholder or owner of the payment information then notices their account being used for transactions or purchases they did not authorize, and raises a dispute. This is where the issue arises for business owners, as they will have to settle the dispute, pay numerous penalties such as chargeback fees and investigation fees, and face an overall loss of time and resources. In some cases, customers themselves can falsely initiate a chargeback, denying ever having received the product. This is also a form of payment fraud.

If merchant account providers such as banks find it increasingly insecure to be involved in a business’s transactions, the business might have their merchant account deactivated due to the risk of fraud. It’s easy to see how problematic payment fraud can be for business owners. Let’s take a look at some of the major types of payment fraud that can affect your business.

Common types of transaction fraud

There are as many different types of transaction fraud as there are financial transactions. But due to our preferred transaction methods, some stand out as the greatest threats. Here are a few:

1. Credit Card Fraud: A type of financial transaction card fraud where someone’s credit card information is used without their knowledge or consent to make purchases. This can include stolen card details, counterfeit cards, or skimming.

2. Identity Theft: The fraudulent acquisition and use of another person’s personal information, such as social security numbers, dates of birth, or financial account details, to conduct fraudulent transactions or open new accounts in the victim’s name.

3. Online Payment Fraud: A form of online transaction fraud specifically targeting payment systems like digital wallets. Can also include hacking into payment platforms or exploiting vulnerabilities in online payment processes to conduct fraudulent transactions.

4. Phishing Scams: Fraudsters deceive individuals through fraudulent emails, messages, or websites designed to trick them into revealing sensitive information such as passwords, account numbers, or login credentials. This information is then used to conduct fraudulent transactions.

5. Check Fraud: Manipulating or counterfeiting checks, or conducting unauthorized wire transfers to divert funds from legitimate accounts or deceive individuals into providing funds for nonexistent goods or services.

6. Wire Fraud: Financial fraud committed using electronic communications. Includes fraud committed with wire transfers, online services, social media, mobile devices, or other electronic means.

7. Zelle fraud: Scams using social engineering tactics to trick Zelle users into sending or receiving money as part of a fraud scheme. Can involve stealing user funds or tricking users into being money mules.

8. E-commerce Fraud: Fraudulent activities in online shopping, such as making purchases with stolen credit card information, using fake identities, or manipulating the payment process to obtain goods without paying.
9. Account Takeovers: Unauthorized access and control of someone’s financial accounts, either through hacking, social engineering, or other means, to conduct fraudulent transactions or drain funds.

10. Online Auction Fraud: Misrepresentation or non-delivery of goods or services in online auction platforms, where individuals make payments but do not receive the promised items or receive counterfeit products.

How should one reduce the chances of fraud affecting my business?

1. Monitor transactions carefully: Make sure you monitor and verify all important information during a transaction, such as shipping address, IP address, amount, and date. This helps keep track of transactions and reduces the chances of any important detail being altered without you noticing.

2. Restrict access to confidential information: By restricting access to confidential details, you’ll be able to reduce the chances of any important information being leaked or accidentally landing up in the wrong hands. Only provide access to confidential information to people you trust, and employees whose role in your business requires them to have access.

3. Encrypt transactions and emails: Encrypting any document before sending it to someone else ensures that the person can only view the document, and not manipulate or alter the data in it. This ensures that there is no chance of customers changing important information and using it for unethical purposes.

4. Avoid paper checks and invoices: Apart from being a hassle, conducting business transactions and recording them on paper makes your information very susceptible to being stolen.

5. Use strong authentication procedures: Using a multiple-factor authentication system further ensures no unknown individual can have access to your finances.

6. Keep up to speed on fraud trends: It also helps to keep up to date on the latest types of fraud. With businesses functioning primarily online and becoming increasingly connected, fraudsters are always finding new and lucrative methods to obtain and use private information. It is in your best interest to ensure you stay on top of the latest kinds of fraud affecting other businesses around the world, so that you can implement the necessary security to protect your business from them.

Keep your business safe from online payment frauds

There is no guaranteed method for payment fraud prevention. By taking certain precautions however, you can minimize the damage they cause and make sure your business has the best chance to thrive despite them.

The three pillars of fraud protection

As with any type of crime, approaches to detecting and preventing fraud have evolved over time. Fraud is definitely one of the success stories for applying big data, as this enabled analysts to change the way they looked at customers and payments. The three pillars of fraud detection are:

• A refined rules engine
• Machine learning
• Link analysis using graph databases

1. A refined rules engine

Rules were the foundations of old-school fraud solutions until machine learning came along and changed the game. Sleek, agile models made the overstuffed, creaking rulebooks seem outdated and a chore to maintain. But this doesn’t mean rules are completely obsolete. There are still situations where fraud analysts need to directly intervene in prevention - and rules provide the means to do that. Rules are still a relevant part of the prevention toolkit that complement machine learning and other technologies. 

2. Machine learning

Instead of just relying on rules with yes/no answers, machine learning uses trained models to score every transaction in terms of low, medium or high risk. Whereas you need to feed rules into a rules engine, machine learning models are proactive and work on payments in real time, using past data and new information simultaneously. Machine learning is automated and highly flexible to handle thousands of payments each second. A model is basically the equivalent of a team of analysts running hundreds of thousands of queries and comparing the outcomes to find the best result. With machine learning this is done in milliseconds with minimal human input. 

3. Link analysis using graph networks

Link analysis is like a detective’s wall with suspects, dates and locations covered by criss-crossing strings connecting them. A graph network does a similar job - it allows you to look at all the evidence across all your customers and join the dots to build a picture of what a fraudster looks like, so you can prevent future fraudsters from making payments.

Machine learning models and graph networks are mutually reinforcing. For example, you can teach your machine learning model to flag large networks for review and to block payments from networks which have grown super quickly, to prevent a fraudster from using multiple accounts to order goods.

Transfi provides a secure and transparent way to maintain and deal in finances. It does the above mentioned tasks within its system as prerequisites to any payments and transactions. 

Let's find out further how Transfi helps in maintaining security for all your transactions and personal data.

How Transfi brings the Essential Payment Security Practices for E-Commerce 

The rise of e-commerce is a change that affects the whole world, not just a trend in stores. This is because digital technology is the most important part of our economy. As more businesses go online, though, making sure that payments are safe becomes both a technical and a business goal.

1. PCI DSS

Some of the biggest credit card companies that set the Payment Card Industry Data Security Standard (PCI DSS) are Visa, Mastercard, and American Express. This is the best way to keep your payment safe. You must follow these important rules to keep cardholder data safe. Here are some of the most important rules:

• Using firewalls and splitting up networks to keep important systems separate.
• Encrypting cardholder data both when it is being sent and when it is not being sent.
• How to look out for viruses and security holes.
• Access controls that limit who can see payment details.
• Taking notes on anything strange that happens while you watch people.
• A rule that all workers must follow to keep things safe.

If you break the rules, you could get huge fines, lose the ability to process cards, and hurt your brand for good. Companies need to check themselves and others on a regular basis to make sure they are following the rules.

2. Tokenization and Encryption

Using strong encryption protocols is the first step in protecting data:

• Transport Layer Security (TLS) keeps data safe as it moves from the client to the server.
• End-to-End Encryption (E2EE) keeps private information safe from the time it enters the system until it gets to the payment processor.
• Data-at-Rest Encryption protects payment information stored in databases and backups by using algorithms like AES-256.

Tokenization is another way to protect information. It turns real card information into tokens that don't mean anything. You need to be able to get into the vault where these tokens are kept in order to use them. Because of this, there is less of a chance of a breach, and PCI DSS audits don't look as closely.

3. Strong Authentication Systems 

• Multi-factor authentication (MFA) is now an important part of the security stack because identity theft is becoming more common.
• To use Two-Factor Authentication (2FA), you need to enter a password and something else, like an authenticator app or a one-time password (OTP).
• It's easy and safe to prove who you are with biometric authentication that uses your fingerprints or face.
• Adaptive authentication changes how often identity checks are done based on things like where the device is or what it can do.

In Europe, the PSD2 rules for Strong Customer Authentication (SCA) say that at least two of the following three things must be true: you must have something (biometrics), you must have something (device), and you must know something (password).

4. Making Sure that Payment Processors and Gateways are Safe

The payment gateway is the online link that lets your customer talk to the bank that gave them their credit card. It's also the first big safety check. Some of the best ways to do it are:

• The gateway provider has all of the PCI DSS certifications.
• 3D Secure 2.0 makes it possible to make real transactions even if you don't have a card.
• Using IP risk scoring and device fingerprinting to find fraud in real time.
• Encryption from the browser to the CPU.
• You can keep APIs safe by using rate limiting, IP whitelisting, and OAuth tokens.
• Merchants must ensure that their gateway never displays any unencrypted card information.
  

Businesses that work across borders need to connect with global-ready platforms like Transfi. Add Transfi to make cross-border payments safe, legal, and instant in over 100 countries. 

5. AI-Powered Fraud Detection

It's not enough to just use set rules to find fraud anymore. The machine learning models that modern platforms use are always getting better. Things to think about:

• Finding unusual patterns in transactions that don't happen very often. 
• Checks on speed to keep people from testing cards too quickly.
• To block very dangerous sources, use device fingerprinting and geolocation.
• Sift, Kount, and Riskified are all services that give you real-time fraud scores.
• These tools help stop fraud from happening in the first place and cut down on false positives.

6. Safe Growth and Keeping Up With the Times

Hackers usually get into systems by using known bugs in software. Because of this, you should definitely build safely and keep up with current standards. What you need to do:

• Always keep the operating system, apps, and tools from other companies up to date.
• If you want to write safe code, follow the OWASP rules.
• As you work on it, use both static and dynamic analysis tools.
• Make the code and the DevOps pipelines safer.

7. Putting People First in Security

People make mistakes all the time, which is why breaches happen. Companies have to pay for security training, which means;

• Show your workers how to protect their data, avoid phishing, and make strong passwords.
• Try to act like a phishing attack to see if you're ready.
• Tell your clients how to make safe payments, like looking for HTTPS and not clicking on links that seem fishy.

8. New, Safe Ways to Pay

Payments are now safer thanks to the following methods:

• Dynamic transaction codes on EMV chip cards help keep people from using cards that aren't theirs.
• Biometrics and tokenization are used by digital wallets like Apple Pay and Google Pay.
• You need to use your fingerprint to pay with a biometric payment card.
• Cryptocurrencies are safe and decentralized by design, but you should be careful when using them because wallets can be stolen.

9. Handling Risks in Vendors and the Supply Chain

No system can run by itself. You need third-party vendors to buy things online, but they can also be bad. Here are some good things you can do:

• Before hiring new vendors, make sure they are safe.
• Use the least privilege principle to keep an eye on who can access your vendors.
• Include clauses in contracts that protect data.
• Have a plan B in case a vendor backs out or breaks a deal.. 

Conclusion

In today’s digital world, payment fraud is becoming increasingly common. But staying safe from payment frauds is possible and it only takes some smart moves, regular habits, as well as reliable tools. Understanding the common forms of fraud, from phishing scams to account takeovers, is the first step in protecting your finances. But prevention doesn’t stop at awareness, it requires choosing the right payment partner.

TransFi is one such tool that ensures secure cross-border transactions by combining cutting-edge technology, compliance with global regulations, and advanced fraud detection mechanisms making every transaction safe, fast, and transparent. Whether you’re an individual sending money to loved ones or a business expanding globally, TransFi offers unmatched security and peace of mind.

Don’t leave your money or your trust in the wrong hands. Choose TransFi, where security isn’t just a feature, it’s our foundation.

Frequently asked questions (FAQs)

1. What is PCI DSS, and why do I need to know about it?

The payment card Industry Data security standard (PCI DSS) is a bunch of rules which keep the cardholder’s information safe across the world. It’s very important for businesses that accept digital transactions  because it safeguards the data from fraud and breaches. 

2. How is tokenization different from encryption?

Encryption codes the sensitive information which can be read by scrambling/decoding it, a key can help with encryption. At the same time tokenization takes the data and replaces it with a certain token which is linked to the original data through a secure token vault. This makes it highly protected and is stored safely. 

3. How do systems that find fraud work right away?

Modern fraud systems find breaches right away as they use machine learning to find any strange patterns in data like the device specifications, location, frequency and past trends. If such behavior is detected, they quickly identify fraud or wrongdoing. 

4. What are the three pillars of fraud protection?

• A refined rules engine
• Machine learning
• Link analysis using graph networks

5. How should one reduce the chances of fraud affecting my business?

• Monitor transactions carefully
• Restrict access to confidential information
• Encrypt transactions and emails
• Avoid paper checks and invoices
• Use strong authentication procedures
• Use strong authentication procedures
• Keep up to speed on fraud trends