Defending Your Business Against CNP Fraud and Other Financial Scams

These days, businesses of all sizes are increasingly vulnerable to financial scams. These scams can take many forms, from fraudulent credit card transactions to fake invoices and theft by employees. 

ABC News notes that Americans lost around $10.3 billion to online fraud in 2022. Phishing was the most commonly reported fraud in 2022, affecting almost 300,000 victims and resulting in losses of $55 million. Understanding the different types of financial scams and implementing preventative measures is crucial to protecting your business’s financial health. 

In this article, we’ll discuss card-not-present (CNP) fraud, a prevalent issue, along with other financial scams you should be aware of.

Defending Your Business Against CNP Fraud and Other Financial Scams

The Growing Threat of CNP Fraud

Investopedia notes that card-not-present (CNP) fraud occurs when a credit card is used to make a purchase without the physical card being present. Ethoca states that this type of fraud is becoming increasingly common as online shopping continues to grow. 

Fraudsters can steal credit card information through various methods, such as phishing emails, data breaches, and skimming devices attached to ATMs. Once they have this information, they can use it to make unauthorized purchases online.

For CNP fraud protection, businesses should implement strong security measures on their online payment platforms. This includes using encryption technology to protect sensitive customer data, employing fraud detection tools that analyze transactions for suspicious activity, and implementing MFA.

Understanding First-Party Fraud

First-party fraud occurs when a legitimate customer intentionally makes a fraudulent purchase. This can involve things like claiming they never received an item they did or requesting a refund after already using a product. According to a study by FinTech Nexus, over 30% of Americans actively participate in first-party fraud.

While less common than CNP fraud, first-party fraud can still cause significant financial losses for businesses. Mitigating first-party fraud requires vigilance and clear policies. 

To protect against 1st party fraud, businesses should have a well-defined return policy. It must outline the timeframe for returns and the conditions under which refunds will be issued. Additionally, implementing robust customer verification processes can help identify suspicious activity.

Phishing Scams

Phishing schemes use phony emails or text messages to deceive victims into clicking on dangerous links or disclosing personal information. These frauds frequently have the appearance of coming from reliable sources, including banks, credit card providers, or even your own company.

Once a victim clicks on a link or opens an attachment, they may be directed to a fake website that looks real. It may cause them to unintentionally download malware that steals their personal information.

According to Forbes, Nevada experiences the highest impact from phishing scams compared to other states. Businesses can help protect their customers from phishing scams by educating them. Keep your consumers informed about how to spot shady emails and the significance of never clicking on unexpected links or attachments.

Hijacking Access With Account Takeover

When a fraudster obtains illegal access to a customer’s online account, it is known as account takeover fraud. This can happen through various methods, such as phishing scams, malware infections, or simply buying stolen login credentials on the dark web. PR Newswire notes that there are over 24 billion login credentials for sale or in circulation on the dark web.

Once a fraudster has access to an account, they can use it to make unauthorized purchases, steal personal information, or even commit identity theft. Businesses can help prevent account takeover fraud by implementing strong password requirements and offering two-factor authentication for customer accounts. 

Additionally, monitoring for suspicious activity, such as login attempts from unusual locations, can help identify potential account takeovers before they happen.

Invoice and Check Fraud

While many scams have gone digital, invoice and check fraud are still prevalent. Invoice fraud involves creating fake invoices and submitting them to a business for payment. 

Check fraud can involve altering real checks or creating counterfeit checks to steal money. To protect against invoice and check fraud, businesses should have a rigorous process for verifying invoices before payment. 

This includes checking the legitimacy of the vendor, verifying the accuracy of the invoice details, and comparing the invoice to purchase orders. Additionally, implementing positive pay-for-checks, a system where the bank verifies the legitimacy of a check before paying it out, can significantly reduce check fraud.


What type of fraud is CNP?

CNP (card-not-present) fraud involves unauthorized transactions where the physical card isn’t present during the purchase. It typically occurs online or over the phone, exploiting vulnerabilities in payment systems or stolen card details. CNP fraud poses significant challenges for businesses aiming to secure digital transactions and protect customer financial data.

Who commits first-party fraud?

First-party fraud involves individuals within an organization misusing their access for illicit financial gain. These insiders may manipulate accounting records, falsify invoices, or abuse their position to embezzle funds. First-party fraud can be perpetrated by employees, managers, or executives, exploiting trust and insider knowledge to evade detection initially.

Why is phishing a popular tool?

Phishing remains a prevalent tool among cybercriminals due to its effectiveness in deceiving individuals and organizations. Phishing attempts use email or text to pose as reliable sources in an attempt to fool users into disclosing private information like login passwords. Its success often relies on exploiting human error and the trust placed in legitimate communication channels.

Overall, financial scams can inflict serious financial damage on businesses. Businesses can significantly mitigate these risks by understanding the various forms of fraud and implementing appropriate security measures. 

This includes strong customer verification, clear return policies, employee training, and robust password protocols. Furthermore, educating customers about phishing attempts and suspicious activity can create a collaborative defense against financial threats.