A Guide To Understanding and Preventing Transaction Fraud

A Guide To Understanding and Preventing Transaction FraudTransaction fraud is a reality for today’s businesses because of two major factors: more businesses have gone online and more are accepting digital payments. To fight this and other types of fraud, businesses must first understand what transaction fraud is. Once they do so, they can start putting measures in place to protect themselves.

What is Transaction Fraud?

Transaction fraud is any fraud committed when a business accepts online payments. Most commonly, fraudsters use stolen credit cards to complete payments or do not have enough money in their accounts and hope the product ships before accounts are reconciled and the business notices.

In the former instance, the business can incur losses if the legitimate cardholders issue a chargeback request. In the second one, the business loses its products with no payment received. Because of how expensive transaction fraud can be, what can businesses do to protect themselves?

Use Enriches Customer Data for Verification

To know that the person making the purchase is the real owner of an account, you need to verify their identity. This can be time-consuming and cost you business, especially with younger customers, who do not like obstacles when trying to complete a purchase.

The best way to go about this is to use fewer data points but enrich them to a point where they can help you know if a transaction is fraudulent. First, check their email address to see if it is legitimate or has been found in a data breach. 

Second, check whether their phone number is linked to a messenger app. Ensure that it belongs to the same country as the credit card the customer is using.

Lastly, check their IP address to ensure it is not too far from their billing or shipping address. Ensure their IP address is not pointing to an emulator, proxy, or TOR connection.

Use Transaction Verification Services

Transaction verification helps understand a customer’s financial behaviors and patterns. Once they do, they can determine whether they would be a good customer for the business and whether the transactions they do will complete.

Transaction verification works hand in hand with account verification because you want to know that the person making the payment is the real owner of that account or those details. Yodlee combines transaction verification and account verification to help businesses better understand their customers. Yodlee delivers powerful apps and solutions that help businesses and players in the fintech industry deliver the best services to their customers. All their apps and services use their powerful data aggregation and analytics platform for the best results for anyone looking to better manage their financial situation.

Let Machine Learning Help

Machine learning can be incredibly helpful in helping you detect and prevent fraud. The first thing you do is feed it a set of rules for fraudulent transactions and give it examples when you flag a transaction as such.

The algorithm will get better at detecting fraudulent transactions and then alerting you about them.

Transaction fraud is a risk every business that accepts digital payments has to deal with. However, there are solutions to help you flag transactions likely to be fraudulent and steps you can take to ensure a transaction is legitimate or not.