Mark runs a thriving e-commerce business, but his payment systems aren’t keeping up with rapid growth.
Many nights, he anxiously reviews real-time eCommerce transaction activity reports, monitoring for potential fraud.
With rising fraud risks, Mark’s stress is mounting. Cybercriminals are exploiting vulnerabilities with advanced tactics, and e-commerce businesses are paying the price.
In fact, a 2023 study by Juniper Research estimated e-commerce losses from online payment fraud would hit $48 billion that year, with more increases expected.
Threats like synthetic identity fraud, account takeovers, and phishing attacks make vigilance critical. Outdated systems leave businesses like Mark’s exposed to costly breaches and disruptions.
The good news?
A cloud-based platform like Microsoft Dynamics 365 Business Central can help.
Business Central’s integration capabilities also allow merchants to connect with leading fraud prevention tools, offering real-time transaction monitoring, automated anomaly detection, and seamless compliance reporting.
These features, along with centralized data, tokenization, and encryption, safeguard businesses against evolving threats while maintaining efficiency and trust.
To stay protected, merchants must adopt secure, modern payment solutions to future-proof their businesses.
Top 5 Current Fraud Risks for Merchants
Fraud risks are evolving as quickly as technology itself. For SMBs and e-commerce businesses, staying ahead means being aware of both traditional scams and advanced tactics. Here are five major fraud risks merchants face today.
1. First-Party Fraud
When customers falsely claim they didn’t receive goods or services, dispute legitimate transactions, or secure unauthorized refunds, they’re committing first-party fraud. Like a slow leak in a tire, this abuse deflates revenue over time and disrupts operations.
2. Card-on-File (CoF) Fraud
Storing card data for convenience comes at a cost. Cybercriminals can exploit stored payment methods to make unauthorized purchases or launch larger-scale data breaches, jeopardizing sensitive financial information.
E-commerce merchants face significant threats from credit card fraud schemes like CoF fraud, which exploit stored payment methods.
3. Account Takeovers
Once fraudsters breach and gain control of legitimate customer accounts, they’re relentless – using them for unauthorized purchases or larger schemes. Account takeovers can be carried out through Phishing attacks.
Fake texts, emails, and websites trick customers or employees into sharing sensitive data like payment details and login credentials.
The result?
Stolen funds, compromised data, and reputational damage.
4. Employee Fraud
Employee fraud is one of the most common occurrences for SMBs.
In the case of credit card transactions, a “trusted” employee with access to the company’s ERP system or payment processing software could potentially process refunds to their own personal credit cards, for example.
5. Carding Attacks
Carding attacks are a common threat to e-commerce and online payment portals. In these attacks, a fraudster uses a database of stolen credit card information to test the validity of hundreds of cards through the company’s payment portal, often using automated bots.
Once the hacker identifies a few valid cards, they can use them to make fraudulent purchases on other e-commerce sites.
While the individual transactions are typically small and may seem insignificant, these activities can have serious consequences.
If a company’s payment portal is exploited in this way, the payment processor may shut down the enterprise’s entire e-commerce capability, citing its role in facilitating fraudulent activity.
Future Trends and Innovative Solutions in Fraud Prevention
Cyber scammers today are as sophisticated as the technology they exploit. Imagine a burglar with a PhD in technology – that’s the level of sophistication we need to guard against when combatting cyber fraud.
Evolving Fraud Tactics:
Artificial Intelligence is transforming industries, but unfortunately, fraudsters are keeping pace. For e-commerce merchants, maintaining robust data security is essential to counter these increasingly sophisticated threats.
Synthetic identity fraud, blending real and fake information, is also becoming harder to detect.
Account takeover attacks are another growing danger, targeting both merchants and customers with alarming sophistication.
Advanced Technologies to Combat Fraud
Staying ahead of fraud demands more than awareness—you need a plan for the proactive adoption of advanced tools and technologies. Cybercriminals leverage cutting-edge innovations, but merchants can fight back with equally sophisticated solutions:
Machine Learning and AI - AI doesn’t just power cybercrime; it’s also a merchant’s greatest ally. Machine learning analyzes real-time transaction patterns, identifying anomalies and predicting potential fraud. Things like sudden changes in purchase behavior or location can trigger alerts, putting the brakes on fraud before it happens.
Biometric Authentication - No matter how clever your passwords are, they’re no longer enough. Biometric technologies like facial recognition, fingerprint scanning, or voice identification add an extra layer of security to ensure that only authorized users can access accounts or complete transactions.
Industry Solutions Like Mastercard’s First Party Trust Program - Programs like Mastercard’s First Party Trust Program address specific fraud challenges, such as first-party fraud, which accounts for 75% of CNP fraud in digital goods. By strengthening verification and monitoring processes, these initiatives set new standards for fraud prevention.
According to Mastercard, this type of fraud remains one of the most significant risks for merchants in the digital goods space, highlighting the importance of robust tools to combat it.
Implementing solutions like these not only mitigates fraud risks but also builds operational resilience.
Investing in these technologies doesn’t just mitigate fraud risks—it also fosters customer trust and future-proofs your business against evolving threats.
Customer-Centric Fraud Strategies
Fraud prevention doesn’t have to come at the expense of your customers’ experience. The best strategies prioritize security without adding unnecessary hurdles.
Balancing Security and Customer Experience
Implementing tools like Multi-Factor Authentication (MFA) and adaptive security practices can enhance protection while keeping the process customer friendly.
For instance, MFA uses simple steps like SMS codes or push notifications to verify identity swiftly.
Adaptive authentication tailors security checks to behavior—trusted customers experience fewer barriers, while suspicious activity triggers additional verification.
Building Trust Through Practical Measures
To ensure a seamless and secure checkout process, merchants should implement the following best practices:
Showcasing Security Credentials: Display trust badges and certifications prominently to reassure customers their information is protected.
Transparent Processes: Clearly explain security features during checkout without overwhelming or confusing users.
Built-in Fraud Prevention Features:
Velocity Filters: Automatically block excessive transaction attempts from the same IP address, with CAPTCHA as an added layer of protection.
AVS (Address Verification Service): Verify that the zip code and/or street address on the billing address matches the credit card information.
CVV Security Code Verification: Require the three-digit code (or four for AMEX) to match the credit card during transactions.
Refund Controls: Prevent unreferenced refunds by allowing refunds only to the original credit card used for the purchase. If the card is no longer valid, issue refunds via check or an account credit.
Adhering to Data Privacy and Compliance Standards: Stay compliant with evolving regulations to protect customer data and maintain trust. Ensure payment systems comply with global standards like GDPR and adopt practices that responsibly manage customer data.
Leveraging Tokenization and Network Tokens: Replace sensitive card details with non-sensitive codes to enhance transaction security and reduce fraud risks. Network tokens, issued in collaboration with card networks like Visa and Mastercard, provide additional layers of protection, ensuring payment accuracy and improving customer confidence at checkout.
Embracing Single-Use Virtual Cards: For B2B transactions, single-use virtual card acceptance reduces fraud risk because one-time-use card numbers are tied to specific amounts. These cards are out of PCI compliance scope, according to the PCI Compliance Security Council, offering enhanced security and simplified payment processes.
Adapting to Customer Feedback: Use customer feedback to refine security measures and ensure loyalty through ongoing improvements.
By combining robust fraud prevention tools with a customer-centric approach, businesses can foster trust and create secure, frictionless interactions that enhance the overall experience.
How Merchants Can Prepare for Current and Future Fraud Risks
Staying ahead of fraud requires a proactive approach. With threats becoming more sophisticated, merchants need advanced, adaptable solutions to protect their operations and build customer trust.
Integrating flexible payment systems like USTPay with Microsoft Dynamics 365 Business Central offers broad access to secure processors and gateways so businesses can address evolving fraud tactics while streamlining operations.
Tools like tokenization, network tokens, and single-use virtual cards enhance security. For e-commerce merchants, these measures are pivotal in reducing vulnerabilities and strengthening data security. USTPay prepares merchants to tackle challenges and adapt seamlessly to future trends.
Fraud prevention isn’t just about reducing risk—it’s about future-proofing your business and maintaining customer confidence.
Get Ahead of Fraud Risks with the Right Payment Solution
Fraud tactics are evolving, but so are the tools to combat them. From tokenization to adaptive authentication, you can secure your operations and protect your customers.
Investing in adaptable payment solutions strengthens your financial infrastructure and builds trust.
Ready to safeguard your business?
Contact USTPay today to explore solutions that protect against fraud and enhance the customer experience. Stay ahead of threats and position your business for lasting success.
About Wade Tetsuka:
Wade Tetsuka is a visionary leader with over 15 years of experience as President of U.S. Transactions Corporation, where he has helped transform the landscape of B2B merchant services.
His deep expertise in finance, coupled with a keen understanding of compliance and client management, has positioned UST–a leading Fintech company and Independent Software Vendor (ISV) for Microsoft Dynamics 365–as a trailblazer in helping businesses save money and streamline payment processes.
As the founder of Presidential Forum LLC, an exclusive network for C-level executives, Wade fosters thought-provoking discussions that shape industry trends and leadership strategies. His commitment to excellence and forward-thinking approach makes him a sought-after voice in both the Fintech and executive leadership arenas.
Connect with Wade on LinkedIn.