An In-Depth Look at Fraud in Online Payments

Apr 19, 2023

A recent report from ACI provides insight into online payment fraud trends in 2022. Here is our takeaway from the report:

As we continue to see a significant increase in the number of eCommerce transactions, it's important to address the growing issue of fraud and chargebacks. According to the report, mobile payment transactions saw a 13% increase in Q3 2022 compared to 2021, indicating their growing popularity and influence on surging eCommerce conversion rates.

Since, in the context of eCommerce and mobile payment, the card details are stored digitally, verifying the identity of the person making the purchase becomes more difficult. This makes certain types of fraud more popular:

➡️ eWallet fraud: eWallet breaches are more lucrative to fraudsters than other forms of fraud due to their increasing popularity of eWallets, the sensitive information stored in them and the anonymity of transactions, which make it easier for fraudsters to hide their activities and avoid being caught. While it is more difficult to breach an eWallet, it is usually done through phishing scams or other means, such as circumventing the security features.

➡️ Authorized Push Payment (APP) scams: APP scams are a growing threat in which a victim is tricked into authorising a payment to an account that they believe is legitimate but is actually controlled by a fraudster, who typically pretends to be a trusted individual or organisation.

➡️ First-party fraud (also known as friendly fraud or chargeback fraud): Occurs when a customer makes a purchase, receives the goods/services and disputes the transaction on the grounds that it was unauthorised or fraudulent. These illegitimate chargebacks may also occur because the customer genuinely does not recognise the transaction.

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In short, the increase in eCommerce transactions has led to a rise in certain types of fraud and chargebacks. While financial institutions need to strike a balance between security and convenience when implementing fraud management measures, they also need to provide seamless and hassle-free dispute experiences to cardholders to ensure that cardholders are not deterred from using their payment products after an unpleasant fraud incident. In addition, in order to reduce the risk of receiving friendly fraud claims, Financial institutions can provide further insights about a transaction and offer virtual agents, guiding the cardholder and challenging them with questions about the disputed transaction in a friendly and easy way.

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