The Value of Fraud Management in the Modern Payment Stack

Blog
Andy McHale, Senior Director of Product and Market Strategy, Spreedly
Apr 16, 2025
Blog

Fraud is a persistent issue within digital payments, with losses estimated to be over $48 billion by 2024 (Juniper Research). As businesses try to block fraud, they must ensure that genuine customers are also provided with a seamless, frictionless experience. Finding the right balance is crucial—one that is too strict will lead to false declines, but one that is not strict enough will expose businesses to fraudulent transactions and chargebacks.

A modern payment stack must encompass smart fraud management strategies to optimize transactions with lower risk. In this blog, we explore why fraud management is a vital part of payment optimization and how businesses can implement fraud protection within payment flows.

Why Fraud Management Is Critical in Digital Payments

Online payment fraud has evolved to be more sophisticated with the use of AI-powered attacks, synthetic identities, and account takeovers to evade standard security. With poor fraud management, companies suffer financially, operationally, and reputationally.

A robust fraud protection strategy has numerous valuable benefits:

  • Fewer Chargebacks – Chargebacks are both time-consuming and costly. Preventing fraudulent transactions avoids having businesses go through these disputes and the accompanying fees
  • Fewer False Declines – Overly aggressive filters will block genuine transactions that are erroneously declined, leading to lost revenue and frustrated customers. A data-driven fraud solution minimizes false positives but continues preventing fraud
  • Regulatory Compliance – Businesses must implement robust fraud protection measures to comply with international regulations such as PSD2 and 3D Secure (3DS). Intelligent fraud tools ensure compliance without negatively impacting the customer experience. In addition to this, 3DS protocol compliance is often accompanied by a liability shift to the merchant
  • Increased Customer Confidence – Customers will be more likely to complete transactions if they are sure that the transactions are secure. A well-managed fraud system enhances customer trust and loyalty

Fraud Prevention as a Key Component of Payment Optimization

Fraud prevention is not merely a matter of preventing fraud but also has a crucial role to play in payment optimization. Businesses that integrate fraud prevention into their payment stacks can improve approval rates, decrease operational expense, and enhance the customer experience.

A Forrester study showed that businesses that employed fraud-prevention solutions experienced an average 229% ROI through lower chargebacks, greater efficiency, and higher authorization rates (Forrester).

By incorporating fraud management within payment flows, businesses can:

  • Boost Authorization Levels – Smart fraud checking reduces unnecessary declines to enable more legitimate transactions to be approved
  • Reduce Operational Costs – AI-driven fraud identification minimizes the need for manual fraud analysis, thereby lowering labor costs
  • Streamline the customer experience – Low-risk transactions are permitted to proceed smoothly while additional verification is imposed only where it is essential

Embedding Fraud Prevention into the Payment Stack

Fraud protection must be integrated end-to-end into the payments stack. Standalone fraud protection systems that are decoupled from payment processing can be inefficient, cause transactions to be slowed down, and introduce customer friction.

Some key components of an embedded fraud management solution are

  • Flexibility and Adaptability – Businesses must be flexible enough to implement fraud-preventing solutions that are tailored to suit their specific needs, be it basic 3DS compliance or an extensive fraud-preventing system
  • Multi-Provider Compatibility – An anti-fraud tool that can be used with multiple payment service providers (PSPs) gives companies greater flexibility and reduces the danger of being tied to one specific supplier
  • AI-Based Fraud Detection – Machine learning algorithms analyze large amounts of transactions in real-time to improve fraud identification accuracy and reduce manual intervention
  • Strategic use of 3DS Authentication – Smart fraud solutions strategically employ 3DS challenges to deliver robust authentication where it is essential without causing unnecessary friction

Key Benefits of Integrated Fraud Management

Companies that include fraud protection within payment processes are advantaged by:

  • Seamless Payment and Prevention Flows – A uniform strategy ensures that fraud identification, verification, and approval are accomplished collectively without delay
  • Increased Operational Flexibility – A multi-PSP supporting system provides companies with the capability to grow internationally without having to sacrifice security
  • Optimized fraud checking – Utilizing fraud checking based on the level of transactions minimizes disruptions to legitimate customers with enhanced approval rates
  • Increased Speed of Deployment – Pre-integrated fraud solutions streamline technical complexity to allow for simpler launching and managing fraud protection.
  • Increased Revenue Protection: With reduced fraud losses and increased approval rates, businesses can protect revenue and enhance the customer experience

The Future of Fraud Prevention in Digital Payments

With the continuous evolution of digital payments, fraud management must evolve to address new threats and new technologies. Some emerging trends for fraud prevention are:

AI-powered Real-Time Fraud Detection

Artificial intelligence will further improve fraud detection to enable businesses to scan transactions in real-time and determine risks on the spot.

Smooth integration with global regulations

With the changing payment regulations, companies will require fraud protection solutions that are dynamically compliant to the regulations' evolving demands but remain efficient.

Fraud Prevention Built Into Payment Orchestration

Rather than having fraud protection as a separate function, businesses will include it within payment orchestration layers to deliver a seamless and secure payment experience.

Conclusion

Fraud protection is a crucial component of payment stacks nowadays that gives protection from losses along with optimizing approval rates. Businesses that implement fraud protection within payment flows can achieve lower chargebacks, greater authorization rates, and a smooth customer experience.
With the rise of AI-driven fraud detection and integrated security solutions, the future of fraud protection is smarter and more dynamic. Companies must invest in an elastic and scalable fraud management strategy to be successful in an increasingly digital economy.

About Spreedly

Spreedly's Payments Orchestration platform enables and optimizes digital transactions with the world’s most complete payment services marketplace. Built on Spreedly’s PCI-compliant architecture, our Advanced Vault solution combines a modern feature-set with rule-based configurations to optimize the vaulting experience for all stored payment methods. Global enterprises and hyper-growth companies grow their digital business faster by relying on our payments platform. Hundreds of customers worldwide secure card data in our PCI-compliant vault and use tokenized card data to enable and optimize over $45 billion of annual transaction volumes with any payment service. Spreedly is headquartered in downtown Durham, NC.



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