Top 5 Ways You’re Leaving Payments Susceptible to Fraud

September 19th, 2022
Payment fraud

Many companies are leaving payments susceptible to fraud. Online payments are a growing trend worldwide. This growth is due to the increasing emergence of fintech for seamless and instant payments, online lending, and demands for convenient payment solutions. Despite this shift supporting changing market and economic needs, it forms a conducive environment for fraud.

Most payments are instant with minimal human intervention, making it a high-risk factor for businesses. In 2021, eCommerce losses to payment fraud hit $20 Billion worldwide, a 14% increase from previous years. That year, the US lost up to $756 million to bank transfer fraud. Read to learn more about how your business might be susceptible.

Why is Fraud Detrimental to Your Business?

Besides the obvious financial costs, loss of public trust in your business is a major challenge for victims of large-scale fraud. Lost revenue from reputational damage can be lasting and hard to measure. Additionally, fraud can cause serious chargeback compliance issues for your business, potentially even resulting in the loss of the ability to process payments at all.

How You’re Leaving Your Payments Susceptible to Fraud

Beware of these errors.

1. Operating in High-Risk Spaces

The nature of your business dictates your transaction types, determining your level of risk. For instance, banks and other processors view businesses like e-commerce, CBD, debt collection, and online lending as high-risk. Engaging unreputable third-party partners could leave you open to serious vulnerabilities like bot-net malware and malicious private data sharing, which enable whole-system penetration.

2. Expired Customer Data and Insufficiently Funded Accounts

KYC (know your customer) data often expires; this seemingly insignificant factor threatens your business. Expired KYC information like residential addresses and ID numbers can lead to transaction delays. The same goes for dormant accounts and an insufficiently funded card or bank account.

Fraudsters capitalize on these loopholes by calling your clients to update their KYC or risk canceled payments or loan disbursements. Unsuspecting customers, frustrated at the thought of the imminent inconvenience, share their data, giving unauthorized account access. You’ll lose the customer, incur chargeback costs, or potentially disburse a loan to the wrong recipient.

To mitigate the risk of chargebacks due to this type of fraud, frequently update your customer data, and educate your internal teams on risk management.

3. Friendly Fraud

In a typical “friendly fraud” scenario, a customer uses their card – or knowingly allows someone else to use their card – to make a purchase. They then falsely claim that they never authorized the charge, or that they never received the funds issued, and initiate a chargeback to wrongfully get their money back. Even if the retailer has sufficient evidence and support to prove the consumer made the purchase, there is no guarantee that the merchant will be able to successfully fight the chargeback. Friendly fraud can be very costly to merchants as they lose money and merchandise, pay the cost of the chargeback, and face the threat of their processing account being shut down if this fraud occurs too frequently.

4. Identity Fraud

One can pay using a stolen card or online banking credentials. When this happens, the legitimate owner will demand refunds. Such cases are difficult to solve and result in significant losses, especially because card payment is the most frequent method hit by fraud. In 2020, the US reported 459,297 credit card fraud cases; of this, 85% were identity theft, a 44.6% increase from 2019. This worrying trend is why you should explore ways to protect the payer and yourself.

5. Unclear Dispute Resolution Guidelines and Processes

While losses due to fraud may be recoverable, the process can be painful and long. Such experiences emanate from variable dispute resolution processes and procedures. Often, you might not agree with the bank or card provider, causing lost payments, and a backlog of chargebacks.

Protect Your Business With the Right Partner

With the highlighted susceptibility trends, your best bet is to source the most secure payment platforms. A reputable merchant services provider will guarantee solutions to common and industry-specific processing problems that cost you money, customers, and peace of mind.

Valmar Merchant Services has you covered for such needs. With our unique network of direct banking relationships, we have unrivaled expertise in handling customers in almost any industry, including “high-risk” ones that other providers may not want to serve.

As partners, we’ll deliver highly knowledgeable service and robust payment processing systems with effective fraud detection and no downtime.
Please get in touch to learn more about how you can protect your business for optimum reputation and customer satisfaction and protect your bottom line from fraud.

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