Payment Threats and Small Businesses: Tactics to Fight Fraud

Merchants across the world will lose over €43 billion to e-commerce payment fraud in 2023, as per Juniper Research. Europe will account for 26% of that.

New businesses and SMEs make easier targets for fraudsters as they do not always have the resources to detect fraud and respond right away. According to UK Finance, small businesses face almost four million cases of cybercrime each year, mostly malware and payments fraud.

Payment fraud continues to grow in Europe. Research and Markets has found that in Germany, two out of three e-commerce companies have seen a rise in fraud. In Switzerland, over 85% of online retailers report being targeted by fraudsters. Major e-commerce markets – the UK, France, and Spain – seem to face the highest risk of ecommerce fraud.

So, what is payment fraud?

Payment fraud is when a person uses stolen payment credentials to initiate a payment with the intention to commit fraud. As technology has evolved over the years, fraud has got more sophisticated.

Who is vulnerable to payment fraud?

Any business that handles sensitive personal or financial info of customers, suppliers, etc. online can be at risk for fraud. A common form of fraud called phishing, can target businesses of all sizes. Credit card fraud, on the other hand, may be more frequent amongst online retailers and other e-commerce businesses.

Small businesses can be targeted because of their vulnerabilities, like not having the most up-to-date security systems in place. Businesses that deal in high-value goods may also be at higher risk of facing fraud.

How does this all affect your business?

Fraud leads to a higher likelihood of chargebacks, which can be costly for ecommerce businesses.
A chargeback is a process by which a consumer can dispute a claim on their credit or debit card. If they succeed, they get a refund. It is usually the merchant who is liable to refund the customer.

Handling a chargeback can cost anywhere between €15 and €60 plus the refund value of the purchase, but these charges can easily go higher. Another thing is that if a merchant has a “too high” rate of chargebacks, then card networks like Visa or Mastercard may put them on a monitoring programme or even increase their payments.

Fraud can also damage your brand’s reputation and affect buyer trust. A 2021 survey of online shoppers showed that only a third of shoppers trust businesses’ capacity to prevent e-commerce fraud.

Brand leaders are taking notice of this: 43% said in a 2022 survey that they were concerned about how ecommerce fraud impacts brand reputation.

Thanks to growing awareness about e-commerce fraud and the threat it poses, brands are taking steps to check ecommerce fraud. 89% of merchants said in a 2021 survey that fraud prevention is “very” or “extremely” important.

Learn more:
What is a Chargeback and How Does It Impact Your Business?
Payments Fraud and Brand Loyalty

How to Safeguard your Business from Fraud?

Businesses must adopt a multi-layered approach to fight online and ecommerce fraud. Delaying the adoption of new tools or relying on legacy technology would prove expensive in the long-term. A multi-pronged strategy that includes the use of advanced authentication technologies, fraud prevention tools, and data security best practices is essential.
Here’s a look at the tools that are available to you:

1. Use a PCI DSS payment gateway
PCI DSS is a global standard that must be followed when you process online payments. This standard was created to ensure consumer payments are processed securely and payments data is not accessed and misused by unauthorized parties.

If you are a merchant who accesses, stores, and processes customer payment data, you must comply with the PCI DSS norms, even if you use a third-party processor. Non-compliance carries potential liabilities for merchants, including fines, penalties, or even being debarred from doing business.

Hence, choose a payment gateway that is PCI DSS compliant. Your payment gateway should also be able to encrypt and store customer data securely using a process called tokenization. Novalnet’s payment gateway is 100% PCI DSS certified and comes with tokenization and AI-based risk management capabilities to ensure all your payments are processed in a fully secure environment.

You might like:
How to Add a Payment Gateway to Your Online Store
PCI DSS – Why Do You Need It?

2. Use 2-Factor Authentication and 3D Secure 2
Regulations in Europe such as PSD2 have made strong customer authentication (SCA) mandatory for all online payments. To perform SCA you must use 3D Secure 2, which helps you verify that a customer is genuine. 3DS2 uses multi-factor authentication, wherein a customer must verify their identity using two out of three factors – a password/ PIN, a mobile phone, and a biometric scan (such as fingerprint, iris scan).
This adds extra layers of security to keep your transactions and data secure.

3. Use AI risk management tools
AI-based risk management tools use machine learning along with risk knowledge to detect and prevent fraud more effectively. They can perform complex functions in real-time and significantly reduce the effort and cost related to fraud management. A business can create risk profiles to automate part of the risk assessment process, thus saving you time and reducing manual efforts.

High-value transactions in high-risk markets can be reviewed manually to add an extra layer of protection and avoid chargebacks.

Read more: Why You Should Use AI for Fraud Detection

4. Work with a trusted payments partner
It is advisable to work with a reputed, global payment service provider (PSP). This gives you access to top-notch advice and technical tools that can make a big difference to your business. You get the right guidance, tech tools, and necessary compliance, so that you can focus on your business. For example, when you work with Novalnet, we help you accept payments globally, in 125+ currencies and 150+ automated country-specific payment methods. We also ensure your PCI DSS compliance is covered.

Read more: Tips to choose a PSP in Europe

How Can Novalnet Help?

As a global PSP, Novalnet can help you set up digital payments and set-up advanced fraud management that suits your business needs. We have decades of experience in helping Europe’s leading brands process their payments. Our AI-based payment solutions help you process payments easily and securely in a PCI DSS-compliant environment. Wherever you are in Europe, we ensure that your payments are running smoothly at all times, round the clock.
Give us a call today to know more.

Gowri Shankar Balasubramaniam

Gowri Shankar is the IT Application Security Manager at Novalnet with versatile knowledge in Programming and System/Security architecture. Having 11+ years of experience in the financial services industry, Cybersecurity, Payment Card Industry Data Security Standard (PCI DSS). Certified in Advanced Payment Card Industry Security Implementer (CPISI 2.0), Secure Software Lifecycle Professional (CSSLP) from (ISC)².