Cashless payments, including card transactions, have become more popular ever since the COVID-19 pandemic hit. As the world transitions back to regular routines post-pandemic, consumer spending patterns have shifted. Mastercard Spending Pulse 2023 reveals that there has been an increase in consumers who have focused on travel and entertainment as well as card-present purchases.
However, as finance technology evolves, so does the opportunity for criminals to perpetrate new fraud schemes. According to PYMNTS.com, 93 percent of acquirers saw an increase in fraud transactions in 2021 compared to the previous year. One of the most common frauds is the Card-Not-Present (CNP) scheme.
Understanding Card-Not-Present Fraud: What It Is and Why It’s Rising
CNP fraud occurs when someone uses a debit or credit card without the owner's consent. This type of fraud is common because the seller can't physically see or check the card, making it easier for thieves to use stolen card information for shopping.
Whenever a fraudster obtains sensitive payment information like the victim's credit card number, name, address, or the card's security code, the scam becomes possible. The fraudster then uses this stolen information to purchase goods and services, effectively spending the victim's money. These details can be accessed by credit card thieves in numerous ways, including stealing, hacking, social engineering, or trawling the dark web.
Merchants are held responsible if a CNP fraud happens instead of the banks because merchants must verify the transactions' authenticity. When a CNP fraud is committed, the victim often realises the issue only after reviewing their statements or receiving alerts. The transaction has been completed by then, and the merchant will be left to handle chargebacks.
The number of CNP crimes has been rising over the years. Nilson also reported that CNP fraud accounted for almost 7 in 10 fraud losses to merchants and acquirers in 2020, with a total of $19.43 billion in money loss globally.
Fraudsters can use sophisticated methods to breach security, like account takeovers/hacking, synthetic identities, and friendly fraud. The global nature of online shopping also broadens the scope of fraudster operations. Cybercriminals can commit their crimes across borders, complicating detection.
Latest Fraud Prevention Trends
To avoid CNP frauds, merchants can use various prevention tools.
Tokenisation: Tokenisation can add a layer of security to your credit/debit cards during online transactions. A token is a unique code that replaces the customer’s primary account number (PAN). This token will be the only data recorded on the merchant’s network, and the actual card data will not be transmitted.
3D Secure 2.0: This upgrade from the 3D Secure 1.0 introduces frictionless authentication that overcomes several shortcomings from the earlier version. It allows businesses and payment providers to send more data payments to the cardholder bank. The bank can use more comprehensive data to analyse the risk level and respond appropriately. The latest version also allows integration into mobile banking apps as a form of authentication.
AI and Machine Learning: These two technologies can be used for anomaly detection and predictive analysis to counter fraud. The AI algorithms can identify suspicious patterns and warn the merchant/bank. AI and machine learning can analyse large amounts of data and help make rapid decisions to identify fraud.
Biometric: This authentication is more secure than using PINs and passwords that are more prone to theft. Biometric authentication is also more convenient and fast. Merchants who can integrate biometric authentication into their platforms are less likely to face costly chargebacks due to fraud.
The Role of Payment Gateways in Fraud Detection and Prevention
Payment gateway is an important part of online card transaction security:
Fraud Detection: Payment gateways now incorporate sophisticated algorithms and real-time monitoring to detect fraud patterns. IP detection is one of them, as fraudsters usually use VPN, proxy, or emulator to commit crimes. Payment gateways with built-in fraud detection can also analyse user card and transaction data, feed data through rules, and automatically approve, decline, or send the transaction into manual review.
Secure Transaction Processing: Payment gateways can encrypt sensitive financial information of customers’ cards. This can prevent unauthorized access to crucial card information.
Integration with Security Tools: Payment gateways also provide integration with external fraud prevention tools to enhance security against fraud. Third parties may offer updated fraud prevention technology, such as 3D Secure 2.0. Companies should keep up with the latest security technology to successfully prevent fraud.
Fraud Prevention Checklist for Businesses
Here is a checklist to prevent CNP fraud in your business:
Suitable Fraud Prevention Tools: Find your business's most suitable and efficient fraud prevention tools. Aside from the tools' effectiveness in detecting and preventing fraud, the scale of your business and funds should be considered. Companies can also use fraud prevention tools provided by payment gateways, like real-time fraud scoring and risk assessment.
Train Employees: Ensure employees are familiar with the company's fraud prevention and detection technology. The tools can help automate suspicious activity, but more complex cases might require manual employee review.
Chargeback management: Companies should handle chargebacks carefully. Clear chargeback management is important to prevent fraud. Divide the tasks and create an internal check regularly.
Customer complaint system: Customer service and help is important to avoid undetected fraud. Businesses can also take notes from customers' feedback to enhance security.
Transaction Monitoring: Implement continuous monitoring for unusual transaction behaviours. Use AI for predictive fraud detection to stay ahead of potential fraudsters.
Secure Payment Processing: Use encryption and tokenisation to secure card data from unauthorised access. Regularly update your payment systems to patch vulnerabilities and protect against new threats.
Multi-Factor Authentication: Add security layers like 3D Secure 2.0 to verify the identity of the cardholder during online transactions. Explore biometric checks for an additional level of security, making unauthorised access more difficult.
Vendor Verification: Thoroughly check third-party vendors' security practices and ensure they are compliant with PCI DSS to safeguard the transaction chain from external threats.
Regular Security Audits: Conduct regular security audits to assess and strengthen your defences. Include penetration testing to identify and fix potential entry points for fraud.
Data Protection Policies: Enforce strict data handling and disposal policies within your organisation. Compliance with regulations like GDPR avoids legal repercussions and builds customer trust.
Conclusion
The shift to digital payments demands a new standard in security. Using advanced technologies like tokenisation, 3D Secure 2.0, AI, machine learning, and biometrics is no longer optional but necessary to combat CNP frauds.
Check your fraud prevention strategies against our guide. If you find weaknesses, consider upgrading with APEXX's solutions to keep your business safe and trusted in the digital age.
