Fraud is one of the major challenges in the digital payments industry, there are different kinds of fraud, and they continue to threaten the growth of the industry. One of the major disadvantages of fraud is the loss of trust in online payments; fraud makes customers sceptical about using online payment channels like card payments. 
In the 2020 Aite Group report, U.S. Identity Theft: The Stark Reality, it was recorded that 47% of Americans experienced financial identity theft. In 2019, losses from identity theft cost $502.5 billion and it increased by 42% to $714.4 billion in 2020. 

Source – Federal Trade Commission & Insurance Information Institute

In this article, I’ll be recapping one of our Grow My Business Webinars where Adewale Ayantoye, our Global Head Of Product Compliance, spoke about Fraud In The Payment Space. You can watch the webinar via the link below. 

The job of compliance & risk officers (financial crime officers) is to prevent crimes on the platform as much as they can, with the best of their knowledge and resources available to them. However, they still need your support to mitigate these problems. 

What Is Payment Fraud?

Payment fraud is the act of completing a transaction with a stolen credit card or unauthorized payment information that deprives a victim of payable funds or property. It can also occur when a user knowingly chargebacks a legitimate purchase known as “Friendly Fraud.” You can learn more about chargebacks in the article

Fraud is a global pandemic regardless of how we paint it. Regardless of how  Flutterwave makes payment seamless and effortless, it doesn’t mean bad eggs won’t try to come on our platform to defraud businesses & individuals. However, it is our responsibility as a company to prevent it and make our solutions fraud-proof. 

Types Of Payment Fraud 

Just as the use of the internet has evolved, the tactics used for fraud have also evolved. As long as there are loopholes in payment systems, there will always be criminals trying to exploit them. 

The most common instances of payment fraud are:

  • Online Phishing/Spoofing
    This occurs when someone (a fraudster) sends you a fraudulent email or text message with the sole aim of getting you to open it or click a link. If successful, you would have revealed sensitive information to them or they would have deployed malicious software on your infrastructure. 
  • Identity Theft/Merchant Fraud Identity
    Many times, online phishing leads to identity theft. With identity theft, fraudsters take over your account and start defrauding your customers.
  • Data Theft
    This is another prominent problem, fraudsters can steal people’s data especially their social security number (US), bank verification number (NG) and others to defraud them and other people. For every dollar that is being stolen from a legitimate transaction and moved to an illegitimate account, there is a distortion to the global economy.
  • Fraudulent Chargebacks/Friendly Fraud
    This occurs when a cardholder/customer requests a chargeback from the issuing bank after paying for goods & services offered. If the chargeback is approved, the transaction is cancelled and the customer is refunded. A chargeback is legitimate if the goods & services were not delivered but becomes fraudulent if, after delivery, you still want to make the money back.
  • Fraudulent Credit Card Payments
    This is the unauthorized use of a credit/debit card or card information to pay for anything. 
  • Pagejacking defines pagejacking as the process of illegally copying legitimate website content (usually in the form of source code) to another website designed to replicate the original website. A pagejacker intends to illegally direct traffic from the original site to cloned Web pages.
  • Advance Fee & Wire Transfer Scams
    According to the FBI, advance fee fraud occurs when the victim pays some money upfront in anticipation of receiving something of greater value.
    The official website of the Office Of The Attorney General of Washington State described wire transfer scams as incidents where con artists convince a victim to send money to a stranger, usually someone in a different country. Once you send the money, the money is truly gone! 

How Does Fraud Happen? 

Fraudsters contact credit card owners and ask them for sensitive information while posing as legitimate representatives. They use different means of interaction to steal personal data like email, texting malware to smartphones, instant messaging, rerouting traffic to fraudulent websites, phone calls & online auctions.  Also, these fraudsters work in teams to penetrate network security systems by looking for patches that haven’t been updated. 

The Fraud Triangle

The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud. At the centre of the fraud triangle, you have FRAUD!

  • Opportunity: Lack of or weak internal controls, lack of good security on your devices and accounts (weak passwords). 
  • Motive/Pressure: Addictions, financial pressure, greed, gambling etc. 
  • Rationalization: “I’ve not received a raise”, “I’ll pay it back”, “It’s just 50 cents”.

How Payment Fraud Affects Businesses

Fraud affects businesses in many ways, mounting chargebacks can make a business owner refund customers for services offered or goods delivered. These refunds can make you lose money that you’d have used for salary payment, rent, taxes and more. Fraud can affect the financial health of your business and gradually cripple your business. It can also lead to reputational damage, customers who try to defraud your business can also go online to embarrass you and stop customers from patronizing your business. 

Steps You Can Take To Protect Your Business Against Fraud

  • Monitor account activity and keep an eye on transaction deviations.
  • Conduct KYC (Know Your Customer) and proper user identity verification. 
  • Maintain awareness of the latest fraud trends. 
  • Encrypt transactions and emails containing confidential information.
  • Ensure that token and login credentials are regularly changed. 
  • Establish a policy regarding access to confidential information. 
  • Constantly run security checks with antivirus software. 
  • Train all staff members on security and fraud risk management.
  • Remain alert for bogus emails (especially phishing and impersonation emails).
  • Set up dual approval processes (maker & checker). 
  • Practice strong cybersecurity for your devices and online platforms. 

Safeguarding Card Identities

  • Always carry as few cards as possible.
  • Don’t provide your card information to unauthorized people.
  • Don’t leave cards unattended with merchants. 
  • Immediately report the loss or theft of any card to the card issuer. 
  • Never reveal account/card numbers or other card information to individuals posing as agents or representatives of banks. 
  • If aware of any suspicious activity, immediately request a fraud alert be placed on the account to frustrate attempts to charge. 
  • Don’t lend cards to another person.
  • Don’t write down card/account details where others can see them.  

Some Red Flags

  • Unusual large purchases.
  • Multiple transactions in a short space of time.
  • Inconsistency in data supplied & likely false information, typos and spelling errors.  
  • Problem supplying personal information.
  • Attempt to rush/pressure or distract. Never allow anyone to rush or pressure you to reveal confidential information.
  • Customers made several failed attempts to pay using different cards. 
  • Billing & shipping addresses don’t match.
  • Geological location data points to a risk area. 

Tools Flutterwave Uses For Screening, Fraud Detection & Monitoring

Flutterwave understands the importance of safety and security, this is why we have invested in services and solutions that ensure the safety of our merchants and their customers.  We do all the hard work to guarantee you can transact on Flutterwave; rest assured that fraudsters won’t get access to your payment information. These are some of the tools we use to ensure you are protected: 

Payment fraud can hurt both your business and customers. However, by protecting your business against fraud, you can improve your reputation and your bottom line. 

If you are thinking of starting a business, choosing Flutterwave as your payment partner is one of the best decisions you’ll make. Being Africa’s foremost payment company, we have an extensive reach across the African continent. To start accepting payments via Flutterwave, sign up for free here.

Published by Rotimi Okungbaye

Manager, Product Marketing