A Merchant’s Complete Guide to Fraud Systems and Payment Data

Nothing new, financial fraud detection and payment risk systems have been around for a long while – since the early 1970s, to be exact. As fraudsters have become even more skilled and targeted and technology has advanced, systems have come and gone and different approaches to fraud detection have been adopted.

Of these, the most popular involve fraud rules. These systems are extremely popular because they allow analysts to easily see why a rule was broken and whether the behavior is “normal” or not. They also have the advantage of being added, tweaked and changed based on the fraud problem at hand. On the other hand, the simplicity of rules based systems means they can also be easily exploited.

Thanks to innovations in machine learning – and the “big data” revolution – these systems have been strengthened against persistent fraudsters. In commercial systems, there are several fraud rules; these rules act as a “backbone” to detect the more obvious fraud attempts. More advanced rules are then built on top of those. With the help of machine learning, millions of authorizations can be analyzed and trends learned much faster.

How Do Commercial Fraud Systems Work?

Typically, fraud systems are applied at the bank (issuer) and merchant level. These systems, being completely rules based, required managers to write rules that describe suspicious behavior. However, with little to no tools for data analysis, this process could take several weeks and require staggering manual effort. In the meantime, new fraud trends have emerged and new rules need to be developed.

Customers Changing Demands Drive Innovation

Especially over the last few years, customers’ attitudes, demands and preferences have changed. Most desire fast and efficient fraud risk processing – analysis that takes place during the payment process itself. Now, customers are also looking for simple integrations into third party fraud systems, which also cuts down on hardware costs. This has brought about fraud products that are offered as a cloud product/service.

Why Merchants Should Prioritize Fraud Prevention

With the challenges and uncertainty surrounding COVID-19, e-commerce has accelerated quickly. Experts say fraudsters will more than likely take advantage of unsuspecting merchants and those without fraud management systems. Card-not-present (CNP) fraud alone is estimated to top $6.4 billion by the end of 2020.

It’s incredibly important for merchants to constantly improve fraud systems, since older approaches are less effective the more time goes by. In truth, fraud systems can be applied to many areas of the payment process. The ability to apply more advanced fraud checks at any stage gives businesses greater protection against fraud. The key is to reach out to a provider that understands your payment processing needs, provides the latest tools and technology and offers industry-leading chargeback protection services.

Author Bio: Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of high risk merchant account uk. He also writes non-fiction, on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice-cream on his backyard porch, as should all right-thinking people.