Business Solutions for Digital Payment Fraud Prevention

Merchants worldwide enjoy the convenience and security that digital payment methods offer. Unfortunately, digital payment fraud is a significant problem. Fraudsters are becoming more sophisticated with their schemes, making it difficult for organizations to prosecute and recoup their losses.

In fact, the Association for Financial Professionals reports that last year alone, 79% of organizations were victims of payment fraud scams (or attempts), with only 22% of them able to recover 75% or more of their losses. In addition to these losses, businesses then have to shoulder reputational damage and potential regulatory non-compliance issues.

Taking a proactive approach to prevent digital payment fraud is more important than ever for your organization. In this article, we’ll cover the most effective prevention strategies, technology solutions, and the best practices for implementing them. And how Ready Credit’s digital payment methods with integrated fraud-detecting tools will give you peace of mind.

Understanding Payment Fraud in the Digital Era

Digital payment fraud is a form of financial fraud that occurs when fabricated or stolen payment details are used during unauthorized transactions to procure goods, services, or money.

Digital payment fraud comes in many different forms, including: 

• Phishing
• Stolen-card fraud
• Counterfeit cards
• Refund fraud
• Charge-back fraud
• Card-not-present
• Triangulation fraud
• ACH scams
• Amount takeover (ATO)
• Identify theft
• Bank Identification (BIN) fraud
• Skimmers

As technology becomes more sophisticated and widespread, so, too, do these fraudulent payment schemes. Fraudsters are leveraging any vulnerability they can via remote transactions, contactless wallets, and even through API integrations, leaving no industry untouched.

Banking and other financial institutions, in addition to retail businesses, healthcare organizations, and hospitality venues (to name a few), are frequent targets for these fraudulent schemes. 

So, as the saying goes: An ounce of [fraud] prevention is worth a pound of cure. Let’s dive into seven key strategies your organization can use to checkmate these fraudsters and prevent digital payment fraud.

Key Strategies for Digital Payment Fraud Prevention

1. Adopt Secure Payment Methods

Offering your customers and patrons secure payment method options and a fortified payment system will better protect them and your organization from payment fraud. Empowering customers with chip-enabled EMV cards and accommodating payment systems is vital for on-premise transactions. Likewise, for online transactions, SSL and TLS protocols, among other encrypted gateways, are a must-have when protecting sensitive consumer data.

As for card-not-present (CNP) transactions, deploying Card Verification Value (CVV) and Address Verification System (AVS) checks can drastically reduce payment fraud. Further, to protect customer identity, tokenization is effective because your customers’ actual payment details won’t be visible/known, much less stored in your system. 

One of the best digital payment fraud prevention strategies for in-person and online transactions involves a payment system that allows customers to pay with a digital wallet. A fully integrated payment terminal, in this regard, will protect your customers’ data with built-in authentication, encryption, and other safety features, protecting your customers and your business.

2. Implement Strong Authentication

Implementing Two-Factor Authentication (2FA), Multi-Factor Authentication (MFA), and biometric security protocols is critical for securing your customers’ payment accounts and online transactions. Such protocols protect sensitive consumer data by requiring that the person attempting a transaction:

• Answer a personal question or series of questions only they would know (e.g., place of birth, mother’s maiden name, etc.).
• Verify the transaction by inputting a unique one-time code sent to their registered/chosen device.
• Prove they are the card/account holder via biological traits (i.e., fingerprints, voice recognition, etc.).

You can offer your customers additional security via adaptive authentication (aka, step-up authentication or risk-based authentication). Such authentication analyzes multiple data points to determine if the transaction is unusual or suspicious in any way. If so, it will prompt additional authentication steps for the customer to complete. 

3. Enable Real-Time Transaction Monitoring

When it comes to deterring fraudulent payment transactions, real-time transaction monitoring is a must for any organization. You can use Artificial Intelligence (AI) and Machine Learning (ML) tools equipped to analyze every transaction when it occurs, for suspicious or unusual activity. 

Because of their ability to analyze real-time transactional patterns against your organization’s historical transaction data, these tools can quickly identify fraudulent activity and sometimes, depending on the tool, block the transaction altogether.

It’s a good idea to set up real-time alerts for especially high-risk transactions and unusual/outlier transactional behavior.

Accuracy in detection is also vital. So you’ll want to adjust your transaction rules and alert levels periodically to reduce the likelihood of false positives.

4. Train Employees and Stakeholders

A pro-active financial fraud prevention program requires all hands on deck, and that includes staff, stakeholders, and customers. Education is a vital tool when it comes to raising fraud-prevention awareness. 

Consider devoting time and other resources to in-house and customer-facing training and awareness efforts that may include:

• Conducting ad hoc all-hands meetings that cover payment-fraud indicators, such as phishing, triangle schemes, and more.
• Committing to as-needed staff training, covering updated briefings on the most current threats.
• Holding fraud-prevention educational campaigns for customers to raise awareness.
• Ensuring accessible reporting channels are in place to mitigate damage. 

5. Secure Data and Use Tokenization

Encrypting your customers’ sensitive data (end-to-end) is an effective way to protect them from payment fraud. Tokenization involves replacing their card details and other sensitive personal information with a unique alpha-numeric string that anonymizes their data, making it inaccessible to fraudsters. 

Set up Role-based Access Controls

Even in the cases of a data breach, hackers would only have access to the tokens themselves and not your customers’ actual payment information, minimizing the impact of the breach. It’s also critical to set up strict access, role-based controls for your payment data storage, ensuring only authorized staff can access sensitive payment data.

Maintain Security Audit Trails

An audit trail for your financial payment system is a sequential record of all access and transactional details that logs information like the following:

• Date and time of transaction
• Transaction amount
• Who had access and when (including unauthorized access and times)
• Type of transaction
• Workflows 
• Changes made

Such a detailed digital footprint of your payment system creates better transparency and improves accountability. It also allows you to easily identify suspicious activity and, in the event of fraudulent activity, provides clear evidence to aid in the investigation process.

6. Partner with a Trusted Fraud-Prevention Provider

If you’re unsure you can implement and maintain an effective payment fraud prevention plan in-house, it’s best to partner with a reputable fraud-prevention provider. Such specialists utilize tools such as Positive Pay, Real-time Scoring, Debit Blocks, and other advanced fraud detection technologies to create customizable real-time alerts, monitoring parameters, and more.

For example, Ready Credit maintains robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) procedures, fully in compliance with regulatory requirements and banking industry standards. For us and our customers, those procedures include:

• Comprehensive customer due diligence
• Transaction monitoring
• Suspicious activity detection and reporting
• Ongoing risk-based reviews
• Monitoring and reporting high velocity and high dollar load activity consistent with signs of money laundering
• Regular staff training
• Independent testing to ensure the efficacy of the AML program

It’s important to note that not all fraud-prevention providers offer the same tools or level of service that your business may need. Consider the following factors when researching the best provider for your organization:

• Ease of integration with minimal to no disruption to your operations.
• Customization options
• Convenient expert support available when you need it.
• Level of knowledge and adherence to relevant compliance regulations

7. Implement Governance and Dual Controls

For your payment fraud prevention strategy to succeed, you’ll need to create and enforce the right governance/policies for your organization. Consider making the following best practices an integral part of your fraud prevention strategy:

• Define your internal controls (i.e., dual authorization, around-the-clock monitoring, and consistent account reconciliation)
• Consider segregating duties to avoid solo-point control over financials.
• Formalize your approval workflows to achieve consistency and transparency. 
• Commit to a periodic review of authorized signers and make regular changes for greater transparency and accountability.
• Conduct regular fraud-risk assessments and policy updates.

Implementing a Tailored Fraud Prevention Plan

Once you have your fraud prevention blueprint in place, it’s time to put it into action. Remember, this process is subject to trial and error and your unique needs. If one part of the plan doesn’t work best, try an alternative approach until you find what works best for your organization.

To get started, consider starting with the following steps:

Step 1: Start with a Risk Assessment

Identify all vulnerabilities and areas of weakness by conducting a payment-fraud risk assessment. How you do this and the length of time it will take depends on the size of your organization, the complexity of your processes, and the number of transactions you handle. 

You’ll want to examine the following closely:

• Existing protocols
• Internal controls (current transaction monitoring, etc.)
• Employee duties and behaviors
• Analyze your historical financial data (to identify any patterns around fraudulent activity in the past).

Step 2: Create a Probability/Severity Matrix

Once you’ve identified all potential risks, you’ll want to prioritize them and tackle those that would cause the most harm to your customers and organizations. You can do this by creating a probability matrix, aka, a severity or risk-assessment matrix.

Step 3: Take a Comprehensive Approach

After laying out the full spectrum of vulnerabilities and risks in their order of priority, it’s time to respond to them. How you do so will depend on the number and severity of those risks and the resources you have to tackle them.

We highly recommend creating a comprehensive blueprint consisting of the most effective countermeasures and proactive deterrence strategies to safeguard your customers and your organization by:

• Leveraging the best transaction AI or ML monitoring technologies, etc.
• Consulting experts who can assess your unique situation and make recommendations to combat the risks you’re up against.
• Replacing ineffective processes and/or creating improved processes that address the vulnerabilities you’ve identified head-on.

Step 4: Set up Clear Milestones

With your resources lined up, it’s time to roll out a plan of action. Setting clear milestones will make this process less daunting for you and your team. Here are several sample milestones you could use to get started:

• Pilot Testing (broken down into stages)
• Date for a full rollout of the plan
• Periodic audits to assess progress
• Future measures to ensure iron-clad security and continuous improvement.

How Ready Credit Helps Protect Your Payments

Offering your customers secure payment options is a non-negotiable in a world where payment fraud is ongoing and becoming more sophisticated. Ready Credit’s digital payment solutions feature customizable rule engines and real-time analytics dashboards, allowing you to set up customized transaction alerts and review all transaction data anytime. 

For additional safety and security, Ready Credit’s third-party processor, i2c, Inc. utilizes multiple fraud-detecting tools, mitigating risks, including:

• Anomaly detection
• Machine Learning (ML) fraud models
• Fixed-base rules
• Advanced ML algorithms and predictive analytics to model suspicious activity and detect trends that fixed rules can’t define.

All payment platforms have embedded fraud-detection modules, keeping you and your customers safe. Each digital payment solution is also scalable for most organizations across multiple industries, such as retail environments, universities, healthcare settings, event venues, and more, ensuring that no customer demographic is left unprotected.

Final Thoughts: Staying Ahead of Payment Fraud

Those committing digital payment fraud work around the clock to create their next scam. For businesses like yours, that means staying as many steps ahead of them as possible with your fraud-prevention efforts. And a multi-tiered strategy that combines the best digital payment technology and training is key.

Ready Credit’s digital payment solutions with built-in fraud prevention capabilities and team of experts are standing by to safeguard your digital payment transactions and reputation.