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Guide to Online Payment Fraud Prevention

GoCardless
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Last editedApr 20222 min read

The rise of eCommerce has offered businesses many new opportunities, allowing you to expand to new markets and boost sales beyond what was possible in brick-and-mortar stores. For consumers too, the convenience of shopping online has made it one of the most popular ways to buy products and services.

However, with this convenience comes a variety of security risks. Whicheveronline payment methods you choose to accept, it’s essential to consider security and how you can keep sensitive data safe from fraudsters. Keep reading to find out more about payment fraud prevention and how you can protect both your company and your customers’ financial information.

What is online payment fraud?

Before discussing online payment fraud prevention, it’s useful to first establish what is meant by payment fraud. Put simply, it refers to any kind of illegitimate transaction carried out by a fraudster online. Typically, this occurs withcard-not-present (CNP) transactions, which hold more risks as it is more difficult to verify the identity of the card holder.

For this reason, you should take steps to implement online fraud prevention solutions. Otherwise, your company may lose out on sales, and may be subject to expensive chargebacks due to illicit transactions. Remember that if the transaction is disputed by the cardholder, then you may be liable to reimburse them. See some of the best online fraud prevention solutions below:

AVS/CV2 (forms of postcode and address verification)

One of the best ways to ensure payment fraud prevention is by verifying your customers’ identities at the point of purchase. This can be achieved through AVS and CV2 technologies, which are e-commerce payment fraud prevention techniques that work by checking customer addresses against those saved by the payment providers.

3D Secure

3D Secure is one of the best payment fraud prevention techniques, which adds an extra barrier for fraudsters at the payment stage. Customers are required to provide additional information when they make a transaction, and typically are redirected to their bank’s website where they must complete some authentication steps. With the latest version,3DS2, authentication can also be carried out with biometric data such as facial recognition or fingerprint scanning.

There is an SCA (Strong Customer Authentication) mandate in the UK and Europe that requires all businesses to use 3D secure for their online transactions, and it is also implemented widely throughout the world.

Identifying online payment fraud

If you’re wondering how to prevent payment fraud, one of the best ways is to learn how to recognise it. Here are some common scams and suspicious situations that you should look out for:

  • Last-minute changes to delivery addresses or requests to send the items to PO boxes or temporary accommodation, such as hotels.

  • Payments for large orders that have been split over multiple cards.

  • Some fraudsters may make payments and then request to collect goods themselves, often because their address does not match the address associated with the payment card.

  • Pay attention to the user location. For legitimate transactions, the shipping address, billing address and IP address usually point to the same location.

What to do when you’re a victim of online payment fraud

Sometimes it’s impossible to avoid online payment fraud, so what should you do in this situation? If you’re unable to recover the lost funds, then you can report the case to Action Fraud, the National Fraud & Crime Reporting Centre. Following this, they will give you a reference number that you can use to report the case to the police who will be able to chase up the case.

If you’re looking for more resources, Action Fraud has plenty of useful information that you can use to protect your business from payment fraud.

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