What Is Payment Fraud?

What Is Payment Fraud?

Payment fraud is a term that scares every online business owner. It can be very costly, especially because it touches not only your money but also your credibility and customers’ trust. What is a payment fraud, and how can you prevent it?

Payment fraud is any false or illegal transaction done on the internet. The most common scenario is when cybercriminals steal someone’s money, personal property, or sensitive information. But how can it affect your business?

With the growing popularity of online stores, the amount of fraudulent activity is increasing, and cybercriminals are getting more and more creative with their attacks. Fraudsters find various ways to commit fraud online, and they actively use the dark web to do so. The dark web makes it hard to trace shared information about committing fraud and the tools criminals can use. They also sell IDs, compromised cards and share sensitive data on the dark web.

Fraudsters may also contact credit card owners to request sensitive information in a tricky way. They may attempt to steal sensitive data by sending users an email message or SMS, an activity known as phishing.

Another way to get private information is by redirecting cardholders to fraudulent websites. Cyber thieves look for glitches or patches that haven’t been updated for some time, allowing them to easily access sensitive information.

Types of Payment Fraud

There are three main types of payment fraud: fraudulent or unauthorized transactions, lost or stolen merchandise, and false requests for refunds. Below are the most common scenarios for illegal transactions:

Credit Card Fraud

Credit card fraud is one of the most likely types of fraud. The most common scenario is a fraudster using a stolen credit card and buying goods online. The credit card owner usually disputes the charges to get their stolen money back, while the merchant loses not only the product bought by the thief but also the money the thief paid for it.


This method uses emails or websites that require readers to input sensitive information such as their usernames, passwords, or credit card details. Luckily, most search engines and web tools effectively identify untrusted sources trying to deceive customers and acquire sensitive information. Nonetheless, customers should stay vigilant.

Card Testing

Typically, card testing fraud happens when fraudsters use stolen cards to make frequent low-value purchases. If your system doesn’t block such card testers, you need to prepare for a number of chargebacks from the credit cards’ real owners.

Denial of Product Receipt

The claim that the buyer didn’t receive the purchased product also another common scenario. The fraudster orders a product, the merchant sends it to the thief, and the thief then claims that they didn’t receive it. Sometimes, they also deny that they ordered it. It’s hard to prove that they’re not telling the truth, but it’s not impossible.

Fake Returns

This scenario is when a customer tells the merchant that they want a refund and tries to convince the merchant that they sent the ordered product back, but the item never arrives. Sometimes, the customer sends back a single product but claims that there were more items in the box and demands a full refund.

Friendly Fraud

Friendly fraud is one of the sharpest points for online businesses. Friendly fraud occurs when the customer orders a few items, pays for them, and then initiates a chargeback, trying to convince the merchant that their card was stolen. The spectrum of friendly fraud is huge, and it varies across industries. It’s a serious problem for online sellers because it’s really difficult and challenging to detect and not that easy to fight.

Triangulation Fraud

You may have heard about triangulation fraud, which is when a falsified online store offers popular items at extremely low prices. Fraudsters use this method to collect addresses and credit card details. Next, they use the stolen data to order goods from a real store. They use stolen credit cards to make extra purchases, so it’s hard to discover the fraud.


Speaking of fake stores, there’s also a phenomenon called pagejacking. It’s when cybercriminals reroute traffic from an online store and redirect visitors to a different website. This type of fraud mainly affects e-commerce businesses.

Merchant Identity Fraud

This type of payment fraud happens when a cybercriminal sets up a merchant account that is similar to that of a legitimate business. Then, they place charges on stolen credit cards and vanish before the cardholder realizes what happened.

Package Interception

This technique is used by fraudsters who use a stolen card to buy physical items and then intercept or reroute the package during delivery.

How You Can Prevent Payment Fraud

With effective anti-fraud prevention tools, you can protect your bottom line from serious impacts. First and foremost, you need to have a strong fraud management strategy in place. There are also some warning signs you can spot to minimize the risk of being hacked. Check out our article “Fraud Management: Controlling Security Risk in Online Payments” for a list of what you can do to prevent and lower the risk of fraud.

Keep in mind that fraud detection requires a comprehensive approach to analyzed data, so you need a mix of proper fraud prevention tools and knowledge of the latest fraud trends. Plus, you should find a reliable payment processor and ask whether they provide a versatile mix of features to collect and analyze the data, making your online business much easier to run.

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Sandra Wróbel-Konior

A well-established Content Marketing Specialist with a tech-savvy personality, experience in writing, and a passion for reading. Staying up to date with the latest technology and social media trends, in love with GIFs and craft chocolate.

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