Fraud prevention 101

Friday, October 20, 2023
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Cybercrime is on the rise worldwide. Global cybercrime is projected to increase nearly 70% year-over-year in 2023 and cost nearly $14 trillion over the next five years.

In response to this spike in cybercrime, more businesses are investing in fraud prevention and cybersecurity—and seeking payments with layers of security protection built in. Fraud awareness is one of the top ways you can protect your business. When your employees are familiar with the various types of fraud—and all the red flags that can indicate potential malicious activities—they’re better equipped to recognize and respond to suspicious behavior.

Here are some ways to decrease your chances of falling victim to cybercrime and protect your customers—and your business—from fraud. And be sure to download our 10 tips to fight fraud infographic.

Educate your team

Employees can be your first line of defense against fraud. According to the Association of Certified Fraud Examiners (ACFE), organizations that have an anti-fraud training program in place experience fewer losses, quicker resolutions of fraud cases and an enhanced reputation for customer protection.

Create a fraud awareness training program

When your employees know what to look for, they’re more likely to spot fraudulent activity. Create an internal fraud awareness program and make sure all of your employees are trained and know who to contact in case of fraudulent activity or communication.

And be sure to educate your team on the different types of fraudulent activities, including bot fraud, fraudulent card testing, identity theft, phishing and POS malware attacks.

Bot fraud. Also known as botnet fraud or bot-driven fraud, this fraudulent activity happens through automated software programs called ‘bots.’ Bots are computer programs that can perform automated tasks and often mimic human behavior online.

Malicious attackers use bots to engage in various fraudulent activities for financial gain or to exploit vulnerabilities or disrupt services. Common examples of bot fraud include account takeovers and click fraud. Financial institutions, ecommerce platforms and online retailers are especially vulnerable to bot fraud, which is constantly adapting and evolving, making it an ongoing challenge.

Fraudulent card testing. Fraudsters test stolen credit or debit card information by making small, unauthorized transactions or inquiries to see if the card is valid and usable. Card testing typically occurs online, where attackers use automated tools or manual processes to validate a stolen card's details, such as a card number, expiration date and Card Verification Value (CVV).

Identity fraud. Identity theft (or identity fraud) is the unauthorized use of an individual’s personal information by third parties. The identity thief uses a person’s name, date of birth, address, or other personal information for criminal purposes or financial gain.

Phishing and personal information scams. Phishing (and all of its variations listed below) involves the fraudulent use of communication, typically through email, text or websites. The goal is to trick victims into disclosing confidential information, such as credit card numbers, which can then be exploited for financial gain or unauthorized access.

Common types of phishing include:

  • Smishing (SMS phishing) involves using SMS (Short Message Service) or text messages to trick an individual into providing sensitive information or clicking on a malicious link. The attacker may send a text claiming to be from a reputable organization or asking for personal information or directing a user to a fake website.
  • Whaling is a targeted phishing attack that focuses on high-profile individuals within an organization, such as executives or senior management. The goal is to trick these people into revealing sensitive company information, financial data or login credentials.
  • Angler phishing involves exploiting a legitimate website or service's existing trust and reputation to deceive users. Attackers compromise or "angle" a trusted platform to host phishing pages or distribute malicious content. Users may be redirected to these pages through deceptive links.
  • Vishing (Voice phishing) is using phone calls or voice messages to deceive individuals into revealing sensitive information or performing certain actions. Attackers may impersonate legitimate organizations or financial institutions to trick victims into sharing account details, passwords or other confidential information.
  • Spear phishing is a targeted attack where the fraudster customizes the phishing message for a specific individual, organization or group. The attacker gathers information about the target to make the phishing attempt more convincing and increase the likelihood of success.
  • Clone phishing is when a scammer creates a nearly identical copy of a legitimate email, often from a trusted source. The attacker alters certain details or includes malicious links or attachments in the cloned email to trick recipients into revealing sensitive information.

POS malware. POS malware is malicious software designed to steal your customer's personal information through your POS devices. The malware collects payment card data, including debit and credit card numbers, expiration dates and CVV codes.

This data breach happens in real time while the transaction is being processed by your POS terminal, typically in the retail and hospitality industries. The stolen data can then be used for identity theft or fraudulent purchases.

POS malware is spread by email, web addresses and through infected networks or USB devices connected to your POS terminal. POS malware can have a negative impact on your business, including financial and reputational loss. A recent study found that in the first eight months of 2022, the number of unique devices affected by POS malware grew by 19% compared to only 4% the year before. Updating your POS software and restricting user access can help lower your chances of POS malware attacks.

POS malware can have a negative impact on your business, including financial and reputational loss. The number of unique devices affected by POS malware grew last year by 19%, compared to 4% in 2021.

Refund fraud. Refund scams deceives a company, government or financial institution into issuing a refund or reimbursement. Refund fraud can occur in chargebacks, insurance reimbursement, tax refunds and more. Make sure you require a way to identify a customer’s purchase prior to issuing a refund. And have fraud protection like 3D Secure 2 (3DS2) and encryption in place: These security features provide an extra layer of protection, making it harder for fraudsters to access customer data.

Return fraud. Return fraud happens when fraudsters manipulate a return process to obtain a refund in exchange for products or services they didn’t legitimately purchase. A clear return policy well-communicated on your website can reduce return fraud.

Protect your customers—and your business

Educating your employees is only half the battle against fraud. From a business perspective, PCI compliance, Strong Customer Authentication (SCA), 3D Secure 2 (3DS2), encryption, password security and tokenization have important roles in fraud and cybercrime prevention. They enhance the security of digital transactions, protect sensitive data and verify user identities.

  • 3DS2—3DS2 relies on biometrics (and other methods) for a quick, smooth authentication on any device. And it’s the only card authentication method that meets the European Union (EU)’s SCA regulations. According to Visa, 3DS2 even reduces cart abandonment by 70% and checkout times by 85%, while improving security.
  • Encryption—Encryption secures sensitive information and communication by making it difficult for unauthorized users to access or understand the original data without the appropriate decryption key.
  • Password security—Implementing strong password security is crucial in preventing unauthorized access, fraud and theft. Multifactor or biometric authentication can make your payments more secure.
  • PCI compliance—Cardholder data needs to be properly handled and stored in accordance with Payment Card Industry Data Security Standard (PCI DSS) requirements.
  • SCA—If you’re selling in the European Union, your payments need to meet SCA regulations through the Payment Services Directive 2 (PSD2).
  • Tokenization—Tokenization replaces sensitive data, such as credit card numbers or personal identification numbers (PINs), with unique identifiers called tokens. Tokens hide sensitive information so hackers can’t access it.

3DS2 can reduce checkout times by 85% and card abandonment by 70%, while adding an extra layer of security.

Do your part to fight fraud

Our team can support your business by providing security tools to automate and detect fraudulent transactions. We’re also experts in PCI compliance. Contact us today to get started. Or explore four security questions to ask your payment partner.

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