In today's new normal, there has been a massive surge in the count of digital payments among consumers worldwide. Unfortunately, they also create opportunities for fraud by hackers and malicious entities. If you want to start your own payment gateway business, you should follow certain tips to reduce the incidents of payment fraud.

The Impact of Payment Fraud

According to Juniper Research, the total cost of eCommerce fraud to merchants exceeded US$48 billion in 2023 as compared to US$41 billion in 2022. It is expected that the count is expected to exceed US$362 billion globally between 2023 and 2028, with US$91 billion alone in 2028.

Now comes the worrying aspect - fraudulent transactions usually lead to debilitating losses for micro-businesses and small- and medium-sized merchants (SMBs) that may take many years to recover from. Furthermore, payment fraud can also cause reputational damages and unexpected fees and penalties besides direct monetary and inventory losses.

It is estimated that merchants tend to lose US$3.75 for every US$1 lost to fraud because of increased overheads, added fees, and other costs.

Payment Facilitators (PayFacs), software providers, and independent sales organizations (ISOs) tend to face additional pressure as clients turn to them for effective data security and fraud prevention solutions.

How Does Payment Fraud Happen?

Payment fraud usually starts with a fraudster or hacker gaining unauthorized access to payment card data, such as through a phishing attack that would have tricked individuals into providing card data. Hackers or fraudsters may capture card data in many other ways such as skimming (the installation of a device on a payment terminal to record card info and PINs).

You can significantly mitigate your risks of becoming a victim by following the undermentioned security tips:

ü Carefully evaluate merchant services apps: You should perform a comprehensive risk-scoring analysis when onboarding new merchant accounts in compliance with regulations such as Know Your Customer (KYC). Thereafter, you need to carefully conduct ongoing monitoring of their activities to watch for suspicious events or activities.

ü Regularly monitor transactions for irregularities: At all times, you should be careful about unusual behavior such as irregularly large transaction volumes, payment activities at odd times of the day, or purchases in different geographic regions. If you notice any irregularity or foul play, you should immediately notify your merchant or reach out to the consumer's bank so a thorough investigation gets initiated before the release of funds.

ü Enforce multi-factor authentication: You should ensure that the merchant's system cannot be accessed by anyone without many different ways (such as biometrics, iris scan, PIN, password, etc.) to authenticate their identity.

ü Flag unusually large transactions: You should be vigilant to identify unusually large orders or transactions, and flag any that appear suspicious.

ü Use AI-powered fraud identification and prevention solutions: You should leverage artificial intelligence (AI) to proactively identify and curtail fraud. It is equally important to identify high-risk or malicious customers and flag new accounts to prevent purchases by fraudsters who have committed identity theft.

ü Conduct detailed background checks: You should conduct background checks on employees who handle payments of any kind or have access to sensitive payment data.

ü Train your employees: You should regularly educate your employees about payment fraud and different ways to proactively identify and curtail suspicious activity.

ü Stay updated with the latest fraud trends: You should regularly stay updated with the latest payment fraud trends and invest in the latest, proactive fraud detection tools, functionalities, and technologies.

Conclusion

Today, payment fraud has become a nuisance for individuals, businesses, and the world economy. With the growing popularity and surge of online transactions, fraudsters are becoming increasingly sophisticated in their techniques (such as account takeover, identity theft, money laundering, merchant fraud, clean fraud, payment interception fraud, friendly fraud, card not present fraud, authorized push payment fraud, and card fraud), making it more difficult than ever for individuals and businesses to detect and prevent fraudulent activity.

To stay protected, it's important to implement effective fraud detection and prevention strategies using advanced and out-of-the-box machine learning algorithms, artificial intelligence, advanced analytics, and fraud detection automation. Businesses can even invest in advanced tools and technologies like biometric authentication and tokenization to protect against unauthorized access to sensitive information and enhance their fraud detection capabilities. This will help in carefully analyzing large volumes of transactional data and businesses can identify anomalies and patterns that may suggest fraudulent activity.

With the right fraud prevention tools and techniques in place, businesses can effectively and proactively detect and prevent fraudulent activity to protect their reputation and financial assets.

If you want to start your own payment gateway business, you can reach out to ITIO Innovex - one of the most trusted names in the segment of merchant account processing and white-label payment gateway solutions. ITIO Innovex has been offering its innovative, secure, and highly customizable white-label payment gateway solutions that are characterized by advanced technologies such as machine learning, artificial intelligence, PCI DSS, biometric authentication, and tokenization to name a few, to significantly reduce the risk of financial losses for individuals and businesses.

Start your own payment gateway business with ITIO Innovex today!