Customers all over the world today prefer digital payments, including mobile payments, as their method of payment. They speed up and simplify a range of consumer-merchant interactions. Unfortunately, digital payments contribute to reducing payments fraud as well. According to the 2025 PwC Global Economic Crime and Fraud Survey, 51% of firms have encountered payment fraud since 2025, marking the highest rate since PwC began researching the topic 20 years ago. The battle against fraud and cybercrime never ends.
Even as businesses bolster their defenses, fraudsters will continue to create and find security vulnerabilities to exploit. In reality, independent software vendors (ISVs), payment facilitators (PayFacs), and independent sales organizations (ISOs) that supply payment services to shops are all at risk.It must be a constant focus to modify and update your fraud prevention tactics in order to guarantee the security of your company (and the businesses of your merchants). We go over five strategies for reducing payments fraud below.
Payment Fraud's Effects
A new Nilson Report estimates that global payments fraud losses in 2021 were $32.34 billion, a 13.8% increase over 2020. For small and medium-sized businesses (SMBs), fraudulent transactions can lead to crippling losses that might take years to recover from.In addition to immediate cash and inventory losses, payment fraud can lead to unforeseen expenses and reputational damage.For example, according to some reports, additional fees, higher overhead, and other expenses cause merchants to lose $3.75 for every $1 lost to fraud. Additionally, one must consider the risks fraud poses to a merchant’s reputation. If a fraudster manages to obtain a consumer’s financial and personal information, the consumer may be upset and their relationship with the merchant may suffer.PayFacs, software suppliers, and ISOs are under more pressure as customers look to them for efficient fraud prevention solutions. These companies must give merchants the resources and services they need to reduce the risk of fraud and the possible harm to their own financial standing and reputations.
What Causes Payment Fraud?
Often, payment theft begins with a hacker or fraudster acquiring credit card details. Among the methods that unauthorized people can get payment data include through phishing attacks, which trick users into giving over cardholder information, data-stealing spyware, or purchasing cardholder information on the black market. Additional techniques for acquiring payment details include skimming, which is utilizing a device installed on a payment terminal to record card numbers and PINs.Once card information is acquired, fraudsters will either sell it or use it to make purchases. But if they have enough information, they could even be able to create accounts or take out loans in the person’s name, stealing their identity.
Which Payment Fraud Types Are Most Common?
Fraudsters create new ways to steal financial information every year. Among the most common scam schemes are:
- Fraud With Credit and Debit Cards:Anytime an unauthorized individual uses a card to make purchases or take out cash, it is considered credit or debit card fraud. A fraudster may also create a fake physical card to use at a payment terminal using information that has been stolen.Visa claims that within the first four years following the U.S. adoption of EMV technology, counterfeit card Reducing Payments Fraud plummeted by 87% and total card-present fraud declined by 40%. Regretfully, throughout the same period, internet fraud increased by 137%.
- Chargeback/Friendly Fraud:Friendly fraud, sometimes known as chargeback fraud, is on the rise. This type of Reducing Payments Fraud occurs when a legitimate cardholder completes a transaction and subsequently requests a chargeback, claiming that they were dissatisfied with the good or service or that they did not authorize the purchase.According to Sift, a provider of digital trust and safety solutions, chargebacks rose by more than 35% between Q1 and Q4 2022, and over one-fourth of customers acknowledge engaging in friendly fraud.
- Fraudulent Card Testing:Card testing Reducing Payments Fraud is the practice of testing a stolen card to determine whether it may be used to make purchases. They do this in various ways; some may verify them by connecting cards to online accounts or payment-processing apps. Some will make a number of transactions on various websites to find out if a card can accept or reject the payments. Once a stolen card has been successfully validated, fraudsters will either use it or resale it on the dark web.If signs of card testing are not identified in a timely way, merchants could face financial ruin. Unfortunately, organizations and small businesses that accept donations are often more vulnerable to card testing.
- Fraud by Merchants:One specific type of Reducing Payments Fraud that threatens PayFacs, software providers, and ISOs is merchant fraud. This occurs when a scammer poses as a reliable company to deceive clients and companies.To get people to buy something, these actors may offer rare or costly goods at discounted prices. Fraudsters sometimes take the money and then vanish entirely. In other cases, they might give customers who paid full price for what they thought was authentic subpar or fake goods.Regretfully, payment companies are frequently held accountable for merchant fraud, especially when the transactions took place on their own platform.
Top 5 Tips for Reducing Payments Fraud
There are things you can take to lessen your chances of being a victim, even if fraud rates are increasing each.Reducing Payments Fraud cases are listed below:
- Examine merchant services apps carefully:Conduct comprehensive risk-scoring evaluations in compliance with Know Your Customer (KYC) regulations and other legislation when onboarding new merchant accounts. Make continuing activity monitoring a top priority once users have used your platform so you can keep an eye out for any strange activity.
- Keep an eye out for anomalies in transactions:Look for strange activity, such a lot of transactions, purchases made at different places, or payments made at strange times of the day. If you believe there may have been misconduct, let your retailer know or contact the customer’s bank so they can investigate before disbursing funds.
- Report transactions that are abnormally large:Watch for orders or transactions that are abnormally large, and report any that appear suspicious.
- Make multi-factor authentication mandatory:Make sure a merchant’s system is inaccessible to anyone who does not have multiple means of identity authentication. For example, in order to access your merchant portal, you might need to provide your IP address, password, and PIN.
- Make use of sophisticated fraud detection and prevention tools driven by AI:Artificial intelligence (AI)-based solutions are able to identify high-risk consumers, detect fraud, and flag new accounts to stop identity theft fraudsters from making purchases.
Protect Yourself from Payment Fraud
Implementing the aforementioned Reducing Payments Fraud reduction measures with the use of technology particularly AI’s sophisticated capabilities will increase their efficacy.PayFacs, software developers, and ISOs can use AI solutions like Kount to lower their attack risk and ensure KYC compliance with real-time database searches and immediate notifications.Other solutions, such as our Automatic Card Testing Detection tool, identify irregularities in behavior or activity almost instantly, enabling you to halt fraudulent transactions before they do damage to your company.The expense of fraud is too high to be considered an essential component of conducting business.You have an obligation to safeguard the accounts and cardholder data of the merchants who depend on you for payment services, as well as the customers who transact with them, in addition to safeguarding your own interests.
To sum up
Payment fraud is a growing risk that can damage a company’s brand and result in financial losses, particularly for small enterprises. Businesses should use Know Your Customer (KYC) procedures to thoroughly check merchants and keep an eye out for odd trends in activity to lower the risk. Transactions that appear suspect, including erratic volumes, purchases made in strange places, or payments made at strange times, should be closely monitored. Large transactions ought to be marked for examination. Additionally, by demanding multiple layers of verification, multi-factor authentication improves security. Finally, using AI-powered tools aids in early Reducing Payments Fraud detection and identity theft prevention. Businesses can safeguard themselves and their clients against payment fraud by implementing these tactics.
Faqs
What is payment fraud?
When unauthorized people use payment information, such credit card numbers, to conduct fraudulent purchases, it’s known as payment fraud. Phishing, card skimming, and the sale of stolen payment information are a few examples of this.
Why is there an increasing concern about payment fraud?
The use of digital payments has increased the susceptibility of individuals and organizations to cybercrime. Global Reducing Payments Fraud rates are rising as a result of fraudsters’ constant evolution of strategies to take advantage of security flaws.
Which kind of money fraud are most prevalent?
Fraudulent card testing, chargeback (friendly fraud), credit and debit card fraud, and merchant fraud where phony companies defraud clients are common forms.
What are some ways that SMBs might reduce the risk of fraud?
By putting strong security measures in place like multi-factor authentication, KYC, ongoing transaction monitoring, and AI fraud detection systems, SMBs can lower the risk of fraud.