India is now moving towards a cashless economy with a wide acceptance of digital payments. Right now, one can pay digitally in shopping malls as well as in small local stalls. It is undoubtedly an achievement for India – rural India, too now transacts digitally instead of using cash. However, with the increasing use of online transactions, payment frauds also increased side-by-side. It's not just the customers who face payment fraud; merchants face it too – Research shows that 71% of organizations faced payment fraud in 2021.

Today, we will learn about the most common payment frauds in India and how to detect and prevent them. 

Most Common Types of Payment Frauds In India

In India, the following types of payment fraud are very likely to occur:

1. Phishing – It is the way of tricking innocent buyers and sellers into giving their personal and financial information, which results in huge money loss.

2. Identity Theft – It mainly occurs when a card is stolen. As a result, the fraudster gets access of the card number, expiry date, and CVV. With all these details, they can drain accounts in seconds.

3. Online/eCommerce Transaction Fraud – Online transactions are Card-not-present transactions, so the user does not have to verify their identities physically. Fraudsters take advantage of it and transfer the sent amount to their accounts instead of its actual destination.

4. ATM skimming – It is one of the most vulnerable types of payment fraud of recent times, where scammers place micro-devices in the ATM. They create a clone of the card swiped through it, and later misuse it.

5. Pagejacking – It is an illegal practice of using the content of one website for another, which makes a replica of the original website, and all the traffic and conversions go to the duplicate site instead of the original.

6. Chargebacks – It is known as the friendly fraud in the payment ecosystem. It is one of the most difficult to detect and prevent fraud so far. Chargeback occurs when a user faces a dispute and claims a refund; however, the original payment was passed on to another account instead of yours.

Did you know?

eCommerce losses because of payment fraud reached $41 billion in 2022 (2023 prediction $48 billion) – it is approximately 105% higher than 2021's.

Impacts of Payment Frauds

Here are the consequences merchants face due to payment fraud on eCommerce websites and apps:

• Decaying business reputation
• Financial loss
• Loss of customer trust
• Increased operational costs

Amidst all these, loss of customer trust impacts a business most – once the customer abandons a merchant, it takes a huge time to bring them back to you.

How To Detect Payment Frauds?

At present, payment frauds can be detected as well as prevented with technical advancements. Here are some widely used technologies for fraud detection: 

1. Fraud detection technology
2. AVS or Address Verification Service
3. CID or card identification check

What Should You Do After Payment Frauds Hit You?

Before understanding the preventive measures of payment fraud, here is what you should do as soon as you come across a payment fraud:

• Inform all the concerned stakeholders
• File an FIR
• Understand liabilities

How to Prevent Payment Frauds in the Future? 

In order to prevent payment fraud in the future, here are the best practices to follow:

1. Cautious Withdrawals From ATMs

During the withdrawals, be cautious enough – especially when entering the PIN. Cover the keypad to prevent any unnecessary problems inside the ATM.

2. Know The Latest Fraud Trends

As a merchant, you need to understand the latest fraud trends. The hackers are smart – but cybersecurity is even smarter. So, as soon as a new style of fraudulent activity is detected, the cyber crime department comes up with ways to avoid it. All you have to do is stay updated with the trends and follow the guidelines of the cyber crime department.

3. Maintain Fraud Database And Cancel Transaction Requests

Along with maintaining a customer and other databases for own records, it is important to maintain a fraud database. At present, there are many online payment gateways and other payment solution providers that carefully make a fraud database if you opt for their service.

To secure their merchants from all fraud activities, these solutions instantly cancel the transaction requests from any of the records from their fraud database and inform the merchant.

4. Restrict Access To Sensitive Data

At the time of transacting with you, the customers enter a lot of sensitive data – make sure that this database gets very restricted access. Only trustworthy members can access these details and keep them confidential. Get your PCI-DSS compliant as well.

Also, while handing over any ID documents be doubly sure that the person is reliable one. At the time of disposing the ID documents, make sure that nothing can be read from those documents at all.

5. Check Encryption Always

Encryption is safety – so make sure you are transacting with end-to-end encryption to make the payments 3D secure. Always check for HTTPS and the lock icon on the address bar to understand its genuineness.

6. Update The Security Software

Merchants, right from the start of their business operations, use robust security software. However, using it is not enough – regular updates are mandatory. Hackers keep finding new ways to drain money, and security service providers update their systems every now and then to keep your money safe, so update daily.

7. Use Multi-Factor Authentication

Before accepting any transaction request on your website or app, go through a multi-factor authentication – yes, it will take some time to process the request, but it will doubly make sure that your money is in safe hands.

8. Update Passwords Whenever Asked

At present, security software is so strong that every time it detects anything suspicious, it asks for password changes – never ignore or delay it, no matter how busy you are.

9. Keep Eyes On Emails

Emails often send a few incoming mails to junk or spam folders, considering these as suspicious. However, not all suspicious emails can be avoided like these. Whenever you encounter any suspicious mail, update the fraud database. Never ever click and accept any payment request through a link or QR from any unknown source. You must understand that to receive money, no PIN, OTP, or other details are needed.

10. Educate Employees

With the latest fraud trends, detection technology, and prevention, a merchant and all the employees need the proper education on the entire system. Even today, a majority of frauds occur due to a lack of awareness. So, create awareness to minimize fraudulent activities to a great extent.

Wrapping up…

When talking about payment fraud, it is disheartening to say that big companies in the most advanced countries face fraud. A minimum negligence can bring you a massive loss of money and trust. So, be aware, spread awareness, and be careful while transacting digitally to create a safe payment environment for all.