Forex Fraud: How to Detect It & Avoid Different Scam Methods
![Forex Fraud: How to Detect It & Avoid Different Scam Methods](https://assets.cdn.seon.io/uploads/2022/09/ForexFraud_The_affiliate_marketers_Tale_isolated.png)
by Tamas Kadar
Payment gateways and acquirers now offer fraud detection. But there can also be a conflict of interest there.
One way this becomes evident is the rise of what some call the “one-stop-shop”, or the “all-in-one” e-till, which includes fraud detection software along with a whole host of other services.
A payment gateway is an essential tool when processing sales as it enables merchants to securely authenticate any customer’s card details when they have made a purchase online.
In the early days of the internet and ecommerce, payment gateways were essentially online payment terminals but instead of competing with the big name processors, they decided to focus on merchant and consumer technologies instead.
It proved to be a smart move. These days, payment gateways are more essential than ever and give online businesses plenty of security and experience-enhancing features.
Before looking at payment fraud prevention, let’s zoom out to clearly define a few important terms. First, it helps to understand the subtle differences between payment gateways and payment processors.
The authorization part is the key difference, specifically in the card-not-present world (online stores).
Payment gateways are therefore a good place to implement security checks, whether it’s SSL encryption or a check for fraudulent purchases.
Payment gateways play an essential role in safeguarding online transactions and making sure they are processed accurately. Virtually every business engaged in online payment processing faces the potential risk of encountering gateway fraud.
Payment gateway fraud refers to deceptive actions that take place within online payment transactions conducted through a payment gateway. This includes activities such as the unauthorized utilization of either stolen or counterfeit card information for illicit online payments.
Given that a payment gateway essentially acts as an intermediary connecting the merchant and its customers, any time a fraudster seeks to commit payment gateway fraud, they must circumvent any installed fraud detection software.
Payment gateway fraud can take various forms, including:
Since a payment gateway is essentially a middleman between the merchant and its customers, any time a fraudster looks to conduct payment gateway fraud they need to bypass any fraud detection software.
Payment fraud prevention is the key to safer and healthier business growth. We take a look at what systems must be in place for it to work.
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Broadly speaking, each payment gateway gives more options for consumers to pay on your ecommerce site. The more gateways you have, the more you can meet customers’ payment preferences and provide a frictionless checkout experience. It’s no surprise that online merchants favor stacking payment gateway options.
Certain names such as Stripe, Amazon Pay, Klarna, and PayPal have become so synonymous with online payments that they also add a layer of trust for customers.
Here are some tools you can use to reinforce this trust and stop payment fraud in its tracks, while also maintaining a frictionless customer experience:
Certain payment gateways, such as Stripe, Worldpay and PayPal, offer built-in fraud prevention and detection capabilities that operate similar to those offered by third-party providers:
But is this enough to curb fraud?
It is not easy to answer this question, as it depends on the exact method they use and the risk profile of each sector. That said, the more touchpoints are scrutinized the better, and a third-party solution is usually better to have, considering it’s purpose-built to fight fraud rather than part of wider payment enablement functionality.
Combine advanced device fingerprinting, real-time social media profiling, customizable risk scoring and machine learning insights.
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One advantage of trusting built-in prevention functionality is that there is no integration needed and no extra resources spent comparing fraud prevention tools. This is ideal for companies without a risk team or those who lack a technical understanding.
As a merchant, you can usually deploy the built-in fraud prevention feature directly from your standard payment gateway dashboard, whether it’s with Stripe Radar, Worldpay’s FraudSight, or even Shopify’s Fraud Filter app.
Moreover, the pricing structure is usually based on the number of processed transactions, which makes sense for smaller operations and companies with fluctuating amounts of transactions – for instance, online stores whose traffic spikes during certain season sales.
Another key advantage here is the amount of historical card data they possess.
Stripe Radar, for instance, claims there’s an 89% chance that a card has been seen on their network before, even if it’s the first time someone uses it on your site.
However, the disadvantages can be significant depending on your business, similar to the downsides of shared blacklists: one false flag on one site can hurt all the others too.
The first disadvantage should be evident to everyone: The built-in fraud prevention works with your payment gateway only.
This creates a few challenges because:
In short, with built-in fraud prevention, you are always looking at a compromise between ease of use versus business flexibility and agility.
Moreover, you might find that built-in fraud tools aren’t as sophisticated as dedicated third-party solutions.
This is particularly apparent for fraud teams and businesses who need to dig deeper into the custom rules:
Last but not least, you’ll have to understand that payment gateways and acquirers will always err on the side of processing payments.
Their entire business model is built on charging transaction fees, so declining them goes against their purpose.
In fact, one of our clients, a leading crypto exchange, came to us because their all-in-one payment company and fraud tool still facilitated too many chargebacks.
The incentive for these companies will always be weighed towards accepting the payment, and you’ll end up being the one having to pay for the consequences, namely in the form of dispute and chargeback fees.
To recap, let’s compare three fraud prevention tools, including our own, to see when it makes sense to stick with the built-in gateway and acquirer solutions, or when you should use a fraud prevention API.
In short, one-stop-shops are good to cover basic fraud needs, with some caveats.
Built-in fraud tools offered by payment gateways and acquirers do have their use. They require little maintenance, no integration, and can help reduce the most evident cases of transaction fraud.
But for companies with more pressing fraud challenges, they might simply not be enough. A lack of customization options and data enrichment features, and the fact that you can’t transfer rules between different systems means you are locked into a basic service.
Worst of all, they’ll never let you adjust your risk threshold to operate with the safest settings, as this would eventually damage their bottom line.
There are two good news if you are interested in SEON to reduce manual reviews and chargebacks:
First, the solution can work on top of your existing all-in-one e-till, thanks to our powerful data enrichment plugin and modular approach to fraud prevention.
Secondly, a growing number of payment gateways are integrating our tools directly into their systems – further proof that SEON does help reduce chargebacks at scale.
Whether you use our full end-to-end solution or only select one of our modules as part of a multi-layered approach, we can’t wait to help you start reducing chargebacks and boosting transactions for legitimate users.
While some gateways offer protection to help your business process more qualified transactions, developing a fraud prevention stack to accompany what’s available will help minimize risk.
If you’re an online merchant, more gateways give your customers more opportunities to pay with their favorite payment method, thus boosting their user experience.
Learn more about:
Digital Footprinting | Browser Fingerprinting | Device Fingerprinting | Fraud Detection API
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Tamás Kádár is the Chief Executive Officer and co-founder of SEON. His mission to create a fraud-free world began after he founded the CEE’s first crypto exchange in 2017 and found it under constant attack. The solution he built now reduces fraud for 5,000+ companies worldwide, including global leaders such as KLM, Avis, and Patreon. In his spare time, he’s devouring data visualizations and injuring himself while doing basic DIY around his London pad.