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Guide to payments fraud protection

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Last editedApr 20232 min read

In recent years, ecommerce has been growing exponentially, a fact that was accelerated by the COVID-19 pandemic that drove many consumers to online shopping. While online shopping is convenient for both consumers and business owners, it opens up many more possibilities of online payment fraud.

What is payment fraud, exactly? The basic definition is relatively straightforward – payment fraud can be defined as a payment that is made by someone who is not the legitimate owner of the payment instrument (i.e., credit or debit card). There are various types of online payment fraud, and it’s important to understand them in greater detail to ensure better fraud prevention.

Keep reading to find out more about online payment fraud and how businesses and customers can protect themselves.

What is payment fraud?

As previously mentioned, payment fraud can be simply defined as someone who is not the owner of the payment instrument making a payment with that instrument, such as a credit or debit card. However, there are many different ways in which this can occur and you should be aware of these to understand how to prevent payment fraud. Some examples include:

  1. Phishing, in which fraudulent websites are used to acquire private information such as credit card details or login credentials. Whenever entering sensitive information online, make sure to check the source of the website.

  2. Identity theft may be used in online payment fraud. This refers to cases in which a fraudster takes someone else’s personal information and uses it to make fraudulent purchases in their name.

  3. Pagejacking is a worrying payment fraud trend that involves rerouting traffic from an ecommerce site and sending visitors to an unwanted website that may contain malware or aim to acquire the customer’s personal information.

  4. Friendly fraud, which is also known as First Party Fraud, refers to situations where customers request a chargeback for goods that they have in fact received. Your risk system should be able to identify shoppers who commonly initiate these kinds of disputes across different cards and identities.

Payments fraud protection

Now that you know a little more about the different types of online payment fraud that can occur, you might be wondering how to prevent payment fraud. While it’s difficult to completely eliminate fraud, there are various steps that business owners and customers can take to mitigate the risks of this growing online threat.

Remember that payments made over the phone or online (also known as Card Not Present) are more risky than those made in person. There are a few basic steps that you can take to authenticate identity, such as ensuring card verification value is enabled and using inbuilt frameworks to whitelist particular IPs, block country codes and perform velocity checks.

Remember that fraud detection is an ongoing process, and to avoid credit card fraud you should remain vigilant. Stay up to date with all the latest payment fraud trends and make sure to review your orders regularly to spot any suspicious activity. For example, recurring orders made to the same address with different cardholder names and numbers, or first-time orders that are made to a post office box.

Using GoCardless and PayTo to prevent online payment fraud

GoCardless is simple to use and allows you to quickly collect payments from your customers, while PayTo helps you seamlessly set up recurring or one-off payments. Beyond this, there are also built-in security features to help protect you from payment fraud.

PayTo helps to reduce fraud with its instant customer verification feature. This enables you to authenticate customer identity at the checkout to avoid fraudulent transactions, all while simplifying the payment process for the customer so that they don’t have to search for their cards. Plus, this leads to better conversions for businesses.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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