With digital transactions at an all-time high, online payment fraud has become a major threat to businesses of all sizes. Fraudsters are more sophisticated than ever, using stolen financial data, phishing scams, and artificial intelligence tools.
According to Statista, 59% of e-commerce merchants worldwide reported an increase in fraudulent transactions in 2022 – that’s almost 6 out of 10.
Businesses, consumers, and financial institutions all suffer the consequences.
Consumers suffer the stress of identity theft and the hassle of blocking unauthorized transactions and getting their money back.
Businesses are hit by the costs of chargebacks and penalties, coupled with the risks of reputational damage, loss of customer trust, and possible legal or regulatory sanctions.
Meanwhile, banks and financial institutions bear the increasing costs of fraud detection and prevention, plus the risk of compliance failures and fines.
How online payment fraud occurs
Fraudsters access and misuse payment credentials in various ways.
Phishing, social engineering, and dark web marketplaces
Cybercriminals use phishing or other social engineering tactics to trick people into handing over their credit card details or payment credentials.
Stolen credentials are also bought and sold on the dark web. A study by the University of Surrey found that a single set of account credentials can sell for as little as $2.
The dark web market for stolen credentials is fast-moving and highly profitable. The BriansClub data breach of 2019 gives an indication of its scale. Hackers targeted a notorious criminal marketplace and stole a database containing 26 million sets of stolen credit card details.
Malware and automated tools
Cybercriminals also infect computers and devices with malware that steals credentials automatically.
In particular, infostealers are one of the most alarming threats in cybersecurity today. Installed from phishing emails or malicious websites, infostealers are malware that silently raids your device for credentials stored in browsers and apps and sends them to the attackers.
Insider threats
Credentials can also fall into the wrong hands due to data leakage. This is caused by mistakes, security lapses, or sabotage by people inside the organization.
Types of online payment fraud
Your organization is at risk from multiple types of fraud, including:
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Credit card fraud: Fraudsters use stolen or fake credit cards to make unauthorized purchases or transactions.
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Chargeback fraud, also known as friendly fraud: Customers falsely dispute legitimate transactions to obtain refunds. This is estimated to cost US businesses $100 billion a year.
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Account Takeover (ATO): Cybercriminals access an account using stolen or weak credentials and use it for fraudulent transactions.
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Business email compromise (BEC) and invoice fraud: Attackers impersonate executives or vendors to trick businesses into paying them. According to the FBI, BEC fraud cost $55 billion between 2013 and 2023. For example, a man from Lithuania scammed Facebook and Google out of more than $100 million by sending them fake invoices, which they paid.
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Buy now, pay later (BNPL) fraud: Fraudsters exploit BNPL services using stolen identities. According to Sift, BNPL fraud increased 54% in 2022 as these services gained popularity.
How to protect your organization
It’s vital to develop a proactive cybersecurity strategy. Here are some key actions to take:
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Strengthen your payment security: Implement 3D Secure (3DS) authentication and biometric verification, deploy multi-factor authentication (MFA or 2FA), and enforce strong password policies.
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Use AI-driven fraud detection: Deploy machine learning algorithms to spot suspicious transactions. Use behavioral analytics to detect anomalies in payment activity that could be warning signs of fraud. Use fraud prevention tools to flag high-risk transactions.
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Educate your employees: Conduct regular cybersecurity training. Ensure everyone in your organization knows how to recognize potential phishing scams and other social engineering tactics.
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Use secure payment methods: Encourage your customers to use secure payment methods like virtual credit cards.
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Maintain PCI-DSS compliance and conduct security audits: Ensure your business follows Payment Card Industry Data Security Standards (PCI-DSS). Conduct regular security audits and perform penetration testing to identify and fix security vulnerabilities.
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Use a credential monitoring solution: At Cybercheck, we monitor for compromised breached credentials and personal data. If cybercriminals are exchanging data about you or your organization, we alert you so you can take immediate action.
The tools and techniques of payment fraud are constantly evolving
It’s critical that organizations stay ahead of the latest threats.
A proactive security strategy, monitoring for suspicious activity, and educating your employees and customers can help your organization to stay safe.
