Payment Processing Data

Payment Fraud Prevention: How to Keep Your Customers Safe from Fraud

A blueprint of how to keep your customers safe from payment fraud

Written by
Jordan Chavis & Deborah Boyland
Publication Date
November 2, 2022
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Merchants and businesses serve a vital role in their customers’ digital lives, working to ensure their payment and cardholder data is kept safe from fraudsters.

Payment fraud is a prevalent issue affecting organizations of all shapes and sizes. To keep customers safe and your business operations intact, it is of the utmost importance to develop a strong payment fraud prevention strategy that is PCI compliant and highly effective.

In this article, we dive into the depths of payment fraud, including what it is and how your business can work to prevent it.

What is Payment Fraud

Payment fraud is a broad term used to describe the theft of a person’s private financial and payment information. With more payment methods than ever, payment fraud is becoming a larger issue for merchants and business owners.

Several types of payment fraud exist, with some of the most prevalent including:

  • ACH Fraud: ACH fraud is a type of fraud in which a payment account is accessed without authorization to carry out unauthorized payments and withdrawals through the ACH system. This type of fraud is one of the easiest to execute, as the fraudsters only need a checking account number and banking routing number to pull it off.
  • Wire Transfer Scams: Wire transfer scams have grown in popularity over recent years, as wire transfers can be difficult to track or reverse without the proper protections in place. The typical methodology of a wire transfer scam is for a fraudster to pose as a trusted acquaintance or source (such as a friend, family member, or coworker) and request an urgent wire transfer, usually to a different country.
  • Friendly Fraud: Friendly fraud occurs when the customer is the culprit behind the fraud. In friendly fraud, a customer will make a purchase online using a credit card, then contact their credit card company claiming there was an issue with the purchase or that they did not authorize the purchase, resulting in a chargeback. Chargebacks are especially risky, as merchants and businesses not only lose out on revenue but can also face penalties or restrictions as a result.
  • Phishing Fraud: Phishing fraud has flourished in the digital era of payments, as there seems to be an ever-increasing pool of methods for it to be carried out. Phishing refers to fraudulent communication in which a customer unknowingly shares their information with a fraudster, typically through email or by clicking dangerous links.
  • Clean Fraud: Clean fraud is a type of fraud in which a fraudster carries out a transaction that appears to be legitimate, inhibiting fraud detection systems from alerting the transaction as suspicious. Oftentimes, this type of fraud involves stolen credit card information and a fraudster impersonating the cardholder with great finesse.

The Current State of Payment Fraud

In 2021, checks and ACH (Automated Clearing House) debits were the payment methods found to be the most susceptible to payment fraud, according to the 2022 AFP Payments Fraud and Control Report

Although check fraud has declined since 2010, ACH debit fraud increased from 34% to 37% between 2020 and 2021. Overall, the report found that 71% of organizations had experienced “Attempted and/or Actual Payments Fraud” in 2021.

Furthermore, 75% of larger organizations (at least $1 billion in revenue) experienced attempted or actual fraud compared to 66% of smaller organizations (less than $1 billion in revenue), making larger organizations the more susceptible option for fraudsters.  

This report ultimately reveals that — though small organizations are less susceptible to fraud — organizations of all sizes must be more aware of potential fraud risks and be proactive in solving these risks.

What is Payment Fraud Prevention?

Like payment fraud, payment fraud prevention is an overarching term used to describe different strategies, tools, and methods for preventing payment fraud from occurring. 

Having a robust payment fraud prevention model in place is essential for any business, merchant, or other entity conducting business digitally. Setting up a payment fraud prevention strategy involves several activities, including everything from in-depth staff training to automated tools designed for detecting suspicious activity before fraud can occur. 

Though there are many moving parts within a payment fraud prevention strategy, one of the most important components to preventing payment fraud is to maintain PCI compliance or use tools and solutions that are PCI-compliant. 

How Can Businesses Protect Customers from Payment Fraud? 

When it comes to how businesses and merchants can protect customers from payment fraud, the key lies in adopting an end-to-end payment fraud prevention solution. 

Besides maintaining PCI compliance, best practices for fraud prevention include:

  • Defining a Fraud Prevention Program: Having a well-defined fraud prevention program is the first step to ensuring the safety of your customers’ payment data. This can include regular internal reviews, continuous transaction monitoring, and converting from paper checks to electronic payments wherever possible.
  • Educating Employees & Organizing Tasks: These days, many fraud prevention tasks can be handled automatically using artificial intelligence, machine learning, and APIs. However, it is still highly important to provide proper education and training for staff members on how to recognize fraud, as well as to organize tasks to be handled separately by different individuals.
  • Maintaining a Secure Electronic Environment: Electronic payment environments can be highly effective when kept secure. Like with the PCI compliance requirements, this necessitates regular updating of systems and software. It is also essential to implement dual controls that separate tasks such as issuing and approving online payments. Tokenization can also be a great way to carry out digital transactions without risking cardholder data.

Key Takeaways: Protect Your Customers with Spreedly

To ensure the safety of your customer's payment data, it is crucial to work with companies that value security as well as efficiency.

With Spreedly’s global payment ecosystem, you can connect to a wide range of APIs, payment gateways, fraud prevention tools, and more all from a single platform. Spreedly helps your business achieve high approval rates while also enabling various payment methods, including localized payments. 

Plus, Spreedly helps you to improve your checkout experience to provide customers with a seamless payment experience that is highly secure and reliable. 

To access our production trial with 300 free API calls, get started with Spreedly today.

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