Emerging Online Payment Fraud Trends and How to Stop Them
E-commerce has revolutionised the way we shop, but with great opportunities come significant risks. As digital transactions continue to surge, so do emerging fraud trends. Juniper Research forecasts that merchant losses from online payment fraud will exceed $362 billion globally between 2023 and 2028, with losses of $91 billion alone in 2028.
For businesses, staying ahead of these increasingly sophisticated risks is essential. Understanding common fraud tactics and deploying effective fraud prevention strategies can make all the difference.
Here's a deep dive into today's most prevalent fraud trends and how to fight them.
Password or code hacking
As digital payments continue to surge, password and code hacking is becoming a more prevalent form of fraud. Scammers have become increasingly clever at using cyber fraud techniques and hacking tools to gain access to individuals' personal accounts, particularly in mobile banking apps. Once they have access, they can make fraudulent payments or steal sensitive information.
How to stop it: Encourage customers to use strong, unique passwords that incorporate numbers, symbols, and a mix of uppercase and lowercase letters. To add an extra layer of security, multi-factor authentication (MFA) should be mandatory for both consumers and businesses. E-commerce platforms should also implement robust encryption methods to protect sensitive user data from being intercepted during transactions.
Payment interception
"Man-in-the-middle" fraud occurs when fraudsters intercept online payment communications between the consumer and the retailer, often redirecting the transaction to a fake site. This increasingly targets e-wallets and social media-based transactions, where scammers can easily manipulate unsuspecting consumers into making payments to fraudulent accounts.
How to stop it: One of the best online fraud prevention tactics is ensuring your payment system is hosted on a secure, encrypted platform. Avoid third-party sites with weak security protocols. Use trusted payment gateways that offer secure dispute resolution channels in case of fraudulent activity. Encourage customers to use two-factor authentication (2FA) for added protection during payment processes.
Business email compromise
Business email compromise (BEC) is a rising threat involving fraudsters impersonating a senior executive or business partner to trick employees into making fraudulent transfers. In some cases, scammers alter legitimate invoices to redirect payments to their bank accounts.
How to stop it: Organisations can implement internal protocols to verify transactions and emails from key personnel. One effective strategy is to use centralised payment platforms that require multiple levels of approval for financial transfers. Additionally, employee training on identifying phishing emails and suspicious communication is critical in reducing the risk of falling victim to these schemes.
Identity theft
Identity theft is one of the oldest fraud tactics, yet its methods constantly change. Fraudsters increasingly use phishing attacks – a form of social engineering – to dupe individuals into divulging sensitive personal information such as payment details, names, and addresses. Scammers often impersonate legitimate websites or even popular e-commerce stores to lure customers into providing their data on fake platforms.
Tactics to stop it: E-commerce businesses can prevent identity theft by educating customers about the risks of phishing and the importance of using only official websites for transactions. Display trust signals such as SSL certificates and a visible HTTPS URL to reassure customers they are on a legitimate site. Consumers should also check the URL and ensure it matches the official site.
Website takeovers
Website takeovers are becoming increasingly common, particularly with platforms like WooCommerce and Shopify, which can be vulnerable to hackers exploiting outdated plugins. Fraudsters gain control of the e-commerce store, altering payment details or redirecting transactions to their own fraudulent accounts, thereby siphoning off funds from legitimate sales.
How to stop it: The best way to protect your website from being hijacked is to regularly update your security software, apps, and plugins. Implement secure logins and change your passwords frequently to ensure that only authorised personnel have access. Businesses should also invest in strong website security protocols, such as firewalls, encryption, and continuous monitoring, to detect any suspicious activity quickly.
Refund fraud
Refund fraud occurs when a customer places an order and later requests a refund after receiving the product, often without returning it. Fraudsters may also attempt to exploit loopholes in refund policies by claiming that products arrived damaged or didn't meet expectations when, in fact, they are simply trying to keep the goods without paying for them. According to the National Retail Federation, losses due to merchandise fraud are expected to exceed $101.9 billion annually – an increase of 20% year-on-year.
How to stop it: The best way to combat refund fraud is to have clear and transparent return policies. These should be publicly available on your website, outlining the return process and the required proof, such as receipts and tracking numbers. Consider implementing restocking fees for high-value or hard-to-ship items, which can deter fraudsters. It's also crucial to scrutinise refund requests more closely, especially for items that are commonly targeted for fraud.
Fraud mitigation strategies for a safer digital world
As the digital payments landscape evolves, so must our fraud prevention strategies. Here are a few best practices businesses can implement:
- Utilise advanced fraud detection tools: Automated fraud detection systems that use machine learning and AI can quickly identify patterns and spot unusual transactions, making it easier to detect potential fraud before it happens.
- Educate your customers: Regularly educate your customers on how to protect themselves against fraud, including the importance of recognising phishing attempts, using strong passwords, and checking the authenticity of websites before making payments.
- Collaborate with trusted payment providers: Ensure that your payment gateways stick to the highest data protection standards and provide customer dispute services. This can go a long way in preventing fraud and protecting the business and its customers.
- Regular audits and updates: Conduct frequent security audits to identify and address vulnerabilities quickly. Regular updates of plugins and apps used by your e-commerce site can prevent hackers from exploiting known weaknesses.
Digital payment is the future, but not without fraud prevention
Despite the challenges fraudsters pose, the future of digital payments remains bright. The convenience of online shopping and the continued rise of mobile banking offer enormous benefits. However, businesses must take action now to stay one step ahead of cybercriminals. By implementing the right fraud detection strategies, keeping customers informed, and using secure payment methods, e-commerce platforms can protect themselves from emerging fraud trends and ensure a safe, seamless experience for all users.
Vigilance is key in the rapidly evolving world of online payment fraud. It's not just about preventing fraud – it's about building trust and safeguarding your customers in a digital-first world.
About Ecommpay
At Ecommpay, we’re all about making online payments smooth and seamless for businesses ready to grow. We’re not just a provider – we're your trusted partner, here to keep your payments flowing effortlessly and help you get the most out of every transaction.
We believe in financial freedom and inclusivity for all. Our payment gateway brings together direct acquiring capabilities, 100+ alternative payment methods, open banking, and Direct Debits, all through a single integration. Plus, our team of experts is always here to support you and help your business thrive. Head to our website to find out more.
