Digital payment systems are evolving, and so are payment frauds. Generally, payment fraud occurs when a hacker steals a buyer’s sensitive payment information to make unauthorized purchases or transactions. With the increasing number of customers storing cards and making purchases online, cybercriminals keep finding new ways to exploit system loopholes. They take advantage of gullible customers, robbing them of their hard-earned money and leaving e-commerce businesses holding empty bags. That is why integrating a secure payment gateway has become more critical than ever.
Today, we will review the six most common payment fraud types and learn how to prevent them.
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Identity Theft
This is one of the most common and dreaded types of payment fraud. Cybercriminals steal other people’s identity who already have credit cards and bank accounts. After stealing sensitive information, these criminals impersonate someone else and attempt to infiltrate bank accounts or make fraudulent transactions to steal money.
While a hacker can use different ways to steal an individual’s identity, the internet’s anonymity makes it even easier to steal an identity online. Stealing login credentials is easier by hijacking Wi-Fi, breaking through an unsecured network, or exploiting software vulnerabilities. That is why many payment processors in India follow strict encryption methods to store customers’ information in codes.
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Merchant Identity Fraud
This type of fraud happens when a criminal sets up a merchant account resembling a legitimate business. They collect payments on behalf of the real business and disappear without delivering the products ordered. Unfortunately, the cardholder has to bear the loss without any company to claim a chargeback.
VEC or Vendor Email Compromise is a type of merchant identity fraud. It is a long-con attack in which a scammer compromises a vendor’s email account and uses it to steal data and money from stakeholders.
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Phishing
Phishing has become a common form of payment fraud recently. It tricks people into revealing their personal details or clicking on counterfeit links. However, as fraudsters become smarter, phishing scams have become more sophisticated, fooling even the savviest computer users.
Phishing is the process of illegally gathering the personal information of individuals via legitimate-looking websites or emails. Sometimes, hackers project themselves as representatives from known entities or businesses that people trust, enticing them to disclose sensitive customer information, including usernames, passwords, email addresses, bank account numbers, credit card numbers, etc.
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CNP (Card-Not-Present) Fraud
In this type of scam, a scammer tries to make a fraudulent transaction without the presence of a physical card. It often happens when cardholders give out their debit or credit card numbers, their cards get stolen or lost, or when hackers make malicious copies of their cards. They have special PIN capturing or card skimming devices that capture data from the card’s magnetic stripe on the back. Fraudsters often insert these devices at public POS devices where users use their cards for authentic payments.
Over the last few years, the CNP fraud rate has been growing as criminals develop new ways to steal credit card information. While many secure payment gateway systems and credit card companies limit the transaction amount, financial institutions are still on the hook.
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ATO or Account Takeover
ATO happens when a cyber criminal gains access to a user’s account, steals credentials and performs an unauthorised transaction. Buy-online-pickup-in-store or BOPIS fraud has become a common form of account takeover. This type of payment method bypasses standard fraud detection methods, allowing criminals to take advantage of the loophole. ATO cases are a serious concern, as fraudsters continuously find innovative ways to steal data and commit attacks more easily than before.
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Friendly Fraud
Many times, cybercriminals are not the only ones committing payment fraud. Chargebacks are also a possible way of stealing money from e-commerce retailers. Unlike other types of scams that require technical know-how, tools, and strategies, almost anyone purchasing online can commit friendly fraud.
It happens when someone makes a legitimate purchase online, pays for it, and then claims a chargeback citing that the product was not delivered, damaged, or wrong order delivered. A high percentage of merchant loss comes from friendly frauds. Most importantly, such scams are hard to investigate and impossible to avoid.
Payment frauds are difficult to prevent and detect, damaging a business’s reputation and hurting its customers. However, consistently using the right strategies and integrating a secure payment gateway helps guard customer relationships, data, and reputation.
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