Common Fraud Problems

Payment Fraud

Ecommerce lost nearly $7 billion due to chargebacks


Transactions conducted with stolen credit card information and left unnoticed by merchants or payment service providers end up in customer-issued chargebacks, which carry penalties as well as processing fees. This means that every $100 fraudulent transaction ends up, on average, costing $240, and if left unchecked, will result in the merchant being blocked from processing transactions. Cybercrime is now more lucrative than many other forms of organized crime, and organized fraudsters constantly update their methods as well as seek out new targets in order to turn a profit. With the increasing number of data leaks and high-profile hacks, the opportunity for cybercriminals to defraud businesses, as well as consumers, will only increase, costing $7 billion just in the eCommerce space.

Understand the difference between the built-in fraud prevention tools vs. a dedicated service here. You can read more about payment gateway fraud here.

Fake Accounts 

Promo, bonus offers, bogus review opportunities attract fraudsters


Promotional opportunities offered by businesses attract fraudsters to game or abuse the system by creating seemingly real accounts using stolen or spoofed data. Businesses often turn to hard identity checks or verification procedures to counter them, which increases friction in the signup process and overall translates into a bad user experience that causes additional, hard to quantify losses. In the meanwhile, a veritable cottage industry has arisen in gaming promotional offers, meaning that the methods used by fraudsters are increasingly sophisticated, which makes risk mitigation all the more costly. Often businesses have to face “repeat offenders”, that is specialized rings of program abusers who know the ins and outs of the industry-specific risk checks, requiring a constant upgrade and review of the risk management procedures.

Read more about catching multi-account abusers here.

Manual Review

Over 25% of fraud mitigation budgets are spent on manual reviews


While machine learning technologies are getting better by the year, when it comes to risk management, the manual review will never be fully automated. This review process still requires manual data collection, building up a case, communication among departments and with the customers, note-taking and decision making, etc. A quarter of the budget will be spent on the professional staff handling the suspicious cases, which means that there’s plenty of opportunity in deploying tools that allow them to make better, more accurate decisions faster, or giving them flexible, easy to use tools with which they can implement their experiences directly into the risk scoring mechanism.

Read more about deploying machine learning to cut manual review times here.

Friendly Fraud

Friendly fraud accounts for up to 30% of overall fraud


Friendly fraud is when the cardholder had an understanding of the purchase, but for one reason or another revoked their consent through the bank, initiating a chargeback procedure. While good-willed buyers can usually be persuaded by a top-notch customer support team, handling friendly fraud either comes down to risk management or the person(s) tasked with handling the chargeback disputes. They are on the rise globally in line with the share of online transactions, so businesses must be prepared to handle them, as they are not only harder to catch than regular fraudsters, but also require additional verification steps in case the chargeback does end up happening.

Learn more about mitigating risks posed by friendly fraud here.

Account Takeover Attacks

Phishing attacks and data breaches are on the rise, resulting in a growing number of ATO attacks


Not only is password reuse a general security headache: data breaches and high-profile hacks as well as the increased volume of phishing attacks result in a second-hand market of login information for all sorts of businesses out there. Account takeover attacks or account hijackings are rising threats and costly addition to the already sour chargeback-cake. Added to the fact that quite a few customers purchase things online while traveling, and we can see either increased frustration from legitimate users going through verification hoops or increased costs spent on manual reviews by the risk or support teams.