Online Payment Methods — Which Have a High Fraud Risk?

Your business must offer as many online payment methods as possible. Just don’t forget to keep an eye on the potential fraud risks.

Businesses have little choice in the matter these days: they must adapt to their customers’ needs on a global scale. They must localize their content, segment their marketing, and understand how products and services are consumed around the world.

But nothing represents this imperative more than offering the right online payment method to their customers.

In this post, we’ll see why enabling as many payment methods as possible looks good on paper, but that there are inherent fraud risks with every option.

Global Business, Local Payment Preferences

When we think of online payment, we tend to think of credit cards. But people around the world have different preferences. And it’s more cultural than you might think. Some regions, like Germany, favour push payments via bank transfers. APAC customers will need to see an option for Alipay, China UnionPay or WeChat Pay.

Conversion Vs Risk

The eternal balance act for online businesses: how do you accept as many payments as possible, without increasing fraud rates?

The current trend is to favour UX over security, even if it means losing a percentage of your sales to fraudsters. Amazon, for instance, doesn’t even force users to enter a credit card CVV, just so you can complete your checkout faster.

Of course, with the right fraud prevention in place, this becomes a false dichotomy. You don’t need to sacrifice friction for prevention, regardless of the kind of online payment option you offer. But before we go into the detection techniques, let’s first go over each payment method and their associated risks.

Card Payments

Credit and debit cards are the preferred method for online purchases, accounting for around 41% of all online payments. The cards are linked to the user’s bank account, and allow them to debit the account, or borrow the amount and repay it within a grace period (for credit cards).

While Visa and MasterCard are the two largest card networks in the world, your business could also need to process payments from American Express, Discover and Diners, China UnionPay, Cartes Bancaires, Interac or JCB.

To accept card payments in these CNP scenarios (card-not-present), you’ll need to integrate a payment gateway, such as Stripe, Braintree, or PayU, amongst others.

• The benefits: low friction, support recurring payments, immediate payment confirmation, support refunds. Works for all verticals such as SaaS, online stores, and professional services.
• The fraud risk: credit card numbers are easy to steal and buy online. If a fraudster purchases something without the cardholder’s authorization, a chargeback request is likely to be initiated. Credit card payments are also easy to dispute, which puts you at risk of friendly fraud. In fact, credit card payments have the highest dispute rate of all payment methods.
• The consequences: Chargebacks are extremely costly. Too many requests mean Visa or MasterCard will prevent you from accepting payments with their cards. This would be a death knell for many businesses.

What happens with high chargeback rates: The Visa chargeback monitoring program (VCMP)

Visa monitors your chargeback ratio

If you go above a 1% chargeback to sale ratio, you are placed on the high-risk list (VCMP)

You must work with your acquirer on a chargeback mitigation plan and present it to Visa

You have to pay extra chargeback fees, including a $25,000 review every 6 months

If you remain in the program for an extended period, you can lose your processing account

The Rising Danger of Friendly Fraud

Friendly fraud is the fastest growing trend in the fraud world . Put simply, it happens when a customer uses their card to make a legitimate purchase on your site, and later disputes it. It could be for three main reasons:

• Innocent friendly fraud: the buyer genuinely forgot they made the purchase. Or someone in their family did it without authorization (i.e. children buying in-app DLC…)
• Opportunistic friendly fraud: a dissatisfied customer uses the chargeback option to get a refund.
• Malicious friendly fraud: close to standard fraud, this happens when a customer is aware of the chargeback process and uses it to buy items or services and get a refund too.

Digital Wallets

Digital wallets allow users to store funds and make payments online, from a computer or mobile phone. They are also known as e-wallets, and include famous mobile payment systems such as Apple Pay, Google Pay, and AliPay.

…

To read the full article, please visit the link below.

Originally published at https://seon.io on August 27, 2020.