Identifying and Preventing Payment Fraud: All You Need to Understand

Understanding payment fraud

Payment fraud refers to the unauthorized utilization of an individual’s financial details for unlawful transactions. The primary tactic involves tricking individuals into sharing sensitive financial information through the exploitation of hardware and software.

Payment fraud occurs when various devices like scanners, keystroke loggers, and malware intercept manually entered data to divert it to unauthorized individuals. Businesses heavily invest in tools for preventing payment fraud to counter these illicit activities.

Varieties of payment fraud

In today’s technological landscape, every payment method is unfortunately susceptible to fraudulent activities. A brief overview of some of these fraud types is provided below:

Fraudulent credit card activities

As per the 2025 Nilson Report, global losses due to payment card fraud amounted to $33.83 billion in 2023, with the US accounting for around 42% of these losses. A common form of credit card fraud is card-not-present (CNP) fraud, which occurs when stolen card information is utilized for online or phone purchases.

Despite the reduced incidence of card-present fraud due to EMV chip technology, fraudsters still exploit vulnerabilities in merchants’ systems, often resorting to cloning techniques or utilizing stolen cards before they are reported by the victim.

Illustration: In November 2024, a UK citizen’s new credit card was intercepted

Refer to: Detecting Credit Card Fraud through Decision Trees and Support Vector Machines

Deceptive actions involving debit cards

Debit card fraud entails the unauthorized withdrawal of funds directly from the victim’s bank account. This can occur through physical theft of the card, skimmers capturing card data, or data breaches exposing card information. Victims of debit card fraud may experience immediate financial losses as the funds are withdrawn directly from their accounts.

Illustration: In October 2024, a UK resident stumbled upon illicit transactions exceeding £100 on their Uber and Uber Eats accounts tied to their debit card. While Uber refunded the unauthorized charges, the origin of these transactions remained ambiguous.

Fraud related to mobile payments

Mobile payment fraud arises when scammers exploit mobile payment systems, applications, or devices to conduct unauthorized transactions or pilfer financial details. One method involves SIM swapping, where attackers seize control of a victim’s phone number to access their accounts, or using malware to intercept sensitive data like payment credentials.

Illustration: In November 2024, three Indiana residents were accused in connection with a nationwide SIM-swapping plot. Through the victims’ mobile numbers associated with their email, social media, and cryptocurrency accounts, the offenders managed to abscond with funds and personal information.

Refer to: Policy on Security for Mobile Devices

Wire swindling

Wire fraud entails fraudulent activities conducted via phone calls, emails, or online messaging platforms, typically involving false promises or representations to extort money or assets from individuals or organizations. This results in significant monetary losses.

Illustration: In July 2024, individuals in Michigan, Illinois, and Texas pleaded guilty to participating in an international conspiracy involving mail and wire fraud, causing victims to lose at least $2 million between 2017 and 2022.

Counterfeiting through fraudulent checks

Despite the decreasing use of checks due to digital payment options, check forgery remains prevalent. This includes activities like forging signatures, altering check information, or depositing fake checks.

Illustration: Towards the end of 2024, JPMorgan Chase initiated legal actions against clients who exploited a viral “money glitch” by depositing substantial counterfeit checks via ATMs and withdrawing funds before the checks were cleared. This scheme resulted in over $660,000 in losses for the bank.

Bank-related fraudulent activities

Bank fraud encompasses tactics aimed at embezzling cash and other banking assets, such as loan fraud, unauthorized account access, fake wire transfers, and misappropriation of funds. Fraudsters may execute these schemes using stolen identities, falsified documents, or insider knowledge.

Illustration: In December 2024, reports surfaced of entry-level bank employees selling client data to online scammers, facilitating elaborate financial fraud schemes. Employees from various banks duplicated customer financial data which was then sold to purchasers on Telegram.

Preventive measures for payment fraud

The various forms of payment fraud involve an array of deceptive methods designed to purloin financial data for unauthorized utilization. Here are seven prevalent ways in which payment fraud is perpetrated:

Phishing schemes

Phishing entails scammers masquerading as legitimate entities to deceive individuals into divulging sensitive information. This illegitimate practice often involves fake emails, text messages, or websites designed to appear authentic.

Spotting phishing attempts

Beware of uninvited communications soliciting personal details, generic salutations, grammatical errors, and URLs slightly deviating from genuine addresses.

Preventing phishing incidents

Deploying email filtering solutions can aid in recognizing and isolating potential phishing endeavors. Employing multi-factor authentication (MFA) enhances security, and staff should receive training to identify phishing emails effectively.

Skimming methods

Skimming occurs when criminals installDevices on bank teller machines or point-of-sale terminals can be used for nefarious purposes to clandestinely gather card details during lawful transactions. These tools extract the data from the magnetic stripe, allowing the fabrication of fake cards for dishonest activities.

How to recognize skimming

Indicators of skimming gadgets may include poorly fitted or misaligned card slots, unfamiliar extensions on payment terminals, or noticeable remnants of adhesive.

How to thwart skimming

Opt for payment terminals that are compatible with EMV chip technology, known for its superior security compared to magnetic stripe setups. Moreover, affix tamper-proof seals and conduct regular inspections on all payment apparatus.

Identity fraud

Identity fraud entails the illicit access and utilization of an individual’s personal data – such as Social Security digits, bank specifics, or credit card information – for the purpose of committing deceitful or larcenous actions.

Methods to pinpoint identity fraud

Deliberate on installing surveillance services that can highlight abnormal account actions, like unfamiliar transactions, account adjustments, or unanticipated credit queries.

Strategies to avert identity theft

Introduce multiple layers of identity authentication procedures, like biometric data and MFA. Regularly update and patch systems to fortify defenses against data breaches. Educate staff on how to protect personal details and spot social manipulation techniques.

Refer to: What Are Biometric Payments & How Do They Operate?

Chargeback deception

Chargeback deceit, or affable chicanery, arises when a client buys a product and later disputes the charge with their bank, alleging an unauthorized transaction or non-receipt of the product.

Means to identify chargeback deceit

Indicators such as regular disputes from the same customer, significant chargebacks, or disparities between delivery and billing addresses might suggest chargeback fraud. Analyzing transaction records and customer behavior can aid in spotting potential fraudsters.

Approaches to prevent chargeback deception

Keep meticulous records of all transactions, including communication archives and delivery confirmations, to furnish proof during disputes. Communicate your return and refund policies clearly to clients. Employ fraud detection tools that evaluate the risk level of transactions in real-time.

Triangulation dishonesty

Scammers establish counterfeit virtual stores that appear legitimate, offering products at drastically reduced prices. The fraudster captures the client’s credit card details when an order is placed.

Ways to uncover triangulation dishonesty

Monitor transaction patterns such as numerous orders from distinct customers sharing the same shipping address or rapid transactions employing varying payment particulars. Complaints of unauthorized charges by customers, despite product receipt, are probable.

Techniques to thwart triangulation fraudulence

Deploy robust authentication protocols for client accounts to deter unauthorized use of pilfered credit cards. Utilize AI-powered fraud detection services that can flag discrepancies in customer profiles and payment methods.

Card probing

This form of deceit employs bots that swiftly test thousands of purloined or randomly generated card numbers on online businesses or payment gateways by executing minor, inconspicuous transactions to dodge detection prior to conducting larger fraudulent acquisitions to identify valid ones.

Approaches to identify card probing

Be vigilant for unusual spikes in minor transactions, particularly from identical IP addresses or devices. Multiple unsuccessful payment attempts followed by a successful one often signal fraudsters testing different card specifics. Atypical device fingerprints, geolocation disparities, and excessive transaction endeavors within a brief timeframe are also warning signals.

Approaches to prevent card probing

Implementing CAPTCHA and bot detection solutions can obstruct automated scripts employed for card probing. Set velocity regulations and transaction constraints to thwart excessive payment endeavors from a lone user or device. Employ AI-based fraud detection tools that can scrutinize suspicious transaction trends and automatically hinder dubious activities before they escalate.

Acknowledged Push Payment (APP) deceit

Acknowledged Push Payment (APP) deceit manifests when swindlers lure victims into willingly transferring money to fraudulent accounts. As per Alloy’s 2024 State of Fraud Benchmark Report, 22% of surveyed establishments recognized APP deceit as their foremost fraud type by case load.

Means to pinpoint APP deceit

Monitor transaction patterns for extraordinary or high-value payments directed to unproven beneficiaries or new recipients. Employ behavioral analytics and anomaly detection to flag dubious payment requests, especially those involving urgent or last-minute account alterations.

Approaches to prevent APP deceit

Validating payment specifics through a secondary communication channel (e.g., phone communication instead of email) can assist in warding off APP deceit. Introduce MFA and transaction validation procedures to authenticate the identity of payment requesters.

Role of AI in payment fraud and prevention

The increased application of AI has significantly complicated the landscape of payment fraud. As per Trustpair’s most recent fraud report, generative AI tactics such as deepfakes and deepaudio surged by 118% in 2024. Malefactors can engineer intricate schemes that are arduous to detect and often circumvent conventional security measures.

Illustrations encompass:

• AI-augmented APP deceit utilizing AI-crafted communications (deepfakes) mimicking legitimate appeals
• Synthetic identity fraud employing AI to forge fictitious identities, making detection arduous as they lack real existence
•  AI-supported business email compromise (BEC) assaults that masquerade as corporate executives or affiliates to deceive staff into transferring funds or divulging confidential data

Related reading:

That being said, AI is extensively leveraged to enhance payment security, curtail fraud, and enrich the overall customer journey. Here are some of the pioneers in the battle against payment fraud:

1. Visa Advanced Authorization (VAA)

Visa Advanced Authorization is a mechanism that scrutinizes transactions promptly, assessing over 500 risk indicators to gauge fraud probability. It utilizes machine learning models trained on an extensive dataset of global transactions to identify anomalous spending trends, inconsistencies in merchants, and irregularities in geolocations. When a transaction is considered high-risk, Visa can either block it or alert the merchant for further validation before execution.

2. Mastercard Decision Intelligence

Mastercard’s instant authorization decision solution employs AI to evaluate thousands of data points and behavioral analytics to estimate the risk associated with each transaction before granting approval. It constructs a risk score based on historical transaction data, merchant categories, and device specifics to differentiate between legitimate and fraudulent deeds. Mastercard Decision Intelligence aids issuers in minimizing erroneous declines and effectively preventing high-risk payments.

Refer to: Credit Card Fraud Detection Using Rough Sets and Artificial Neural Network

3. Signifyd

Signifyd offers a machine learning platform that evaluates millions of data points from transactions across various merchants to determine the probability of fraud. It assigns a risk score to each order based on user behavior, device data, and purchasing history, enabling instant approval or denial decisions.

4. Riskified

Riskified’s fraud prevention platform utilizes AI to combat chargebacks, account takeovers, and refund fraud for ecommerce businesses. Its behavioral analytics and machine learning component authenticate customer identities, flag high-risk transactions, and automate fraud detection.

Refer to: Protecting Payments in an Era of Deepfakes and Advanced AI

Ways in which payment fraud impacts businesses

While the impact of payment fraud on consumers with stolen financial information is evident, the repercussions for businesses that unknowingly accept funds from compromised accounts are often overlooked.

• Financial setbacks:  Enterprises confront direct financial repercussions from fraudulent transactions. A fraud report for 2025 by Trustpair revealed that 60% of companies affected by payment fraud in 2024 incurred over $5 million in financial loss.
• Damage to reputation:  Falling prey to fraud can undermine customer trust and tarnish a company’s reputation. Reputational damage leads to a decline in customer base and potential growth avenues.
• Resource allocation:  Businesses invest significantly in security measures and personnel. As per Visa’s 2024 Global Fraud report, around 30% to 40% of merchants perceive gaps in fraud tool capabilities and insufficient internal resources for fraud management as key challenges.
• Business interruptions:  Fraud can result in legal disputes and financial instability. Companies facing substantial chargeback incidents are also vulnerable to losing their merchant account, which is essential for accepting credit card payments.

Effective approaches to shield businesses from payment fraud

The ideal fraud prevention strategy varies for each business, hence focusing on the best practices that aid in devising customized payment fraud detection methods tailored to your business requirements is crucial.

1. Perform a risk evaluation

An extensive risk assessment will aid in identifying weaknesses in your business payment processes before fraudsters can exploit them. Start by scrutinizing transaction data to pinpoint high-risk payment methods. Remember to include business partners with platform integrations in your assessment to cover all bases. Subsequently, analyze past fraud incidents to detect any patterns of exploitation. AI analytics and fraud detection software are valuable in this phase.

2. Develop and delineate your prevention strategy

Once risks are identified, armed with the necessary information, opt for proven fraud prevention techniques to craft a tailored fraud prevention strategy.

Collaborate with a payment security consultant that advocates the right blend of multi-factor authentication, tokenization, end-to-end encryption, and AI-driven fraud detection based on your industry and payment procedures. This effort will also assist employees, customers, and financial partners in comprehending their roles in thwarting fraud.

3. Execute your payment fraud prevention plan

Your payment fraud detection and prevention plan should encompass real-time transaction monitoring, biometric verification, behavioral analytics, and automated fraud scoring to aid in identifying and obstructing suspicious activities. Initiate an employee training program on fraud awareness and an informational campaign to educate customers about phishing and scams.

Ensure your business undergoes periodic evaluations for PCI compliance to fortify your defenses against payment fraud.

4. Establish a response plan for incidents

In addition to a prevention strategy, have a well-defined incident response plan ready in the event of successful unauthorized access. Form fraud detection teams, configure automated alerts for suspicious transactions, and establish clear escalation procedures to minimize losses. Identify channels of reporting, such as banks, cybersecurity firms, and law enforcement, that can aid in swift recovery of stolen funds and legal recourse against fraudsters.

5. Document your payment fraud prevention approach

Lastly, maintain comprehensive documentation of your fraud prevention endeavors for consistency, compliance, and continual enhancement. Keep track of security updates, log all fraud incidents, analyze emerging threats, and update policies as required. Regular audits and industry collaboration can refine strategies to stay ahead of evolving fraud schemes.

Refer to our PCI compliance guide to understand how regulatory standards shield your business from payment fraud.

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