Avoiding payment fraud

With the rise of e-commerce, online payment fraud has also increased, becoming one of the most frequently occurring and damaging illegal activities on the internet. In fact, experts estimate that e-commerce credit card processing fraud could top $25 billion by 2024.

E-commerce payment fraud encompasses almost any kind of unauthorized or illicit online transaction made by a cybercriminal. Its victims are people and businesses that are robbed of money, interest, property or personal data through the internet. This can be especially problematic for businesses such as CBD shops, which operate with less legal and regulatory certainty.

Because of the huge volume of electronic transactions happening constantly all over the world, online security threats are omnipresent. The good news for businesses and consumers, though, is there are several steps you can take to avoid – or at least reduce the risk of – falling prey to payment fraud.

How does payment fraud happen? 

Cybercriminals have become savvier at illegally obtaining sensitive information on the internet. Hackers penetrate unprotected network security systems through glitches and patches that haven’t been updated. Or pose as legitimate sources, stealing online users’ private data through fraudulent or malware-filled email, instant messages, smartphone texts, websites, phone calls and web auctions.

What kinds of payment fraud are there?

Cybercriminals and hackers commit many types of online payment fraud, including:

Identity theft: stealing someone’s personal information and using it under false pretenses. 

Phishing: stealing personal information by sending emails from supposedly reputable sources to try and persuade individuals to reveal private passwords and financial data.

Pagejacking: illegally copying legitimate website content and hijacking it, then rerouting the traffic to a different website that contains malware.

Advanced fee and wire transfer scams: asking credit card users and e-commerce business owners for money in advance, in exchange for something later.

Merchant identity fraud: establishing a merchant account for a purportedly legitimate business, then charging stolen credit cards and disappearing before the cardholder realizes the fraudulent transactions.

Credit card processing fraud 

While EMV credit cards have helped guard against fraud for in-person transactions, their embedded computer chips don’t offer protection online. There are different ways crafty cybercriminals can exploit stolen card data to make fraudulent purchases.

Simple credit card theft is one of the most common, with fraudsters obtaining personal account numbers, expiration dates and cardholder names. Another is card testing, wherein hackers steal credit and debit card information in bulk, rapidly trying each card with small transactions to determine which are still unreported to issuers. Sometimes, thieves use stolen credit card data to buy physical goods and then intercept or redirect the packages during delivery, resulting in lost merchandise, merchant chargebacks and refunds.

How can you avoid fraud?

Generally, understanding online threats is fundamental; the mindset of digital security is just as important as the monitoring technology that delivers it. If you are not aware of the latest fraud trends and your own online vulnerabilities, you can’t defend them.

Of course, keeping internet security systems updated is also crucial. Besides using firewalls and antivirus software, businesses should encrypt transactions and emails with private information; ensure tokens and login credentials are changed often; control user access to sensitive data; constantly run website security scans; and require customers be logged into their own accounts before purchasing.

Basic protection steps

All e-commerce transactions are card-not-present because neither the credit card nor cardholder are physically there, which increases the risk of fraud. To combat this, you should acquire information to detect potential cybercriminals and ensure true cardholder identity, using the following: 

Address Verification: Request a billing address for every transaction to confirm it matches contact information the card-issuing bank has on file, and use it as a cross-check for the shipping address.

Card Verification Value/Card Identification number: Request the CVV or CID code that comes with most consumer credit cards to validate the purchaser is the cardholder, not a criminal using a stolen number.

Implementing AVS and card security codes to online checkout can also help slow the payment process of each transaction, making your site less appealing for criminals to target.

Geolocation protection steps

With hackers all over the world menacing a globally interconnected online marketplace, merchants should use country-specific IP filters to analyze transaction risk.

Geo IP tracking: Monitor device, IP address and IP geolocation velocity to automatically reject purchases made from countries deemed suspicious.

Card-issuing country: Exercise even more geolocation control with a filter that enables you to approve a transaction only if the card used was issued in a country you selected. 

Advanced protection steps

What can you do if hackers have accurate billing addresses and security codes and, with the help of web proxies, are able to evade IP address detection? 

Negative database security: Like spam detection, this tool lets you cross-reference each purchase with a list of high-risk card numbers and contact information associated with known fraudulent transactions. 

Quotas and thresholds: Adjust your e-commerce settings to only approve quantities or transaction values between specified amounts, automatically flagging or declining anything outside that range. 

Buying patterns and velocity: Cap the number of transactions that can happen in a particular amount of time, using velocity checks that alert to attempts to exceed your limits. 

Paused transactions: With filters, you can automatically place a hold on suspect transactions, especially big-ticket purchases, then manually review orders or directly contact the cardholder. 

How FLEX Payment Solutions can help

It’s nearly impossible to completely eliminate online fraud. But e-commerce businesses can mitigate the risk of attack and prevent fraudulent transactions by staying vigilant, implementing sophisticated payment solutions and partnering with a trustworthy, tech-savvy processor.

FLEX can provide tools and guidance to secure your business against cyberattacks, helping limit liability and protect both you and your customers. With extensive experience in credit card processing and advanced payment solutions, FLEX can help you proactively detect and avoid online fraud before it hurts your business. We have a unique compliance background and offer our services to any legal business, even hemp-derived CBD shops and Native American tribal lending companies. FLEX can help your growing business save money, stay secure online and succeed.

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