What is merchant fraud?

14 May 2024

The word "merchant fraud" which also refers to payment fraud and merchant account fraud, refers to dishonest acts committed against merchants when money is changing hands. Merchant fraud refers to fraudulent actions that target companies, financial institutions, or payment service providers, as opposed to consumer fraud, which involves consumers falling victim to schemes or illegal charges.

Understanding the nature of merchant fraud and putting measures in place to detect and prevent it are crucial for maintaining the integrity of transactions and protecting businesses from monetary damages.

Forms Of Merchant Fraud That You Should Be Aware Of

Fraudulent operations that target holes in payment systems or deceive merchants using misleading strategies are collectively referred to as merchant fraud. Typical examples of merchant fraud include:

Credit card chargeback fraud

When a customer disputes a legitimate transaction with their bank or credit card provider, chargeback fraud occurs. The customer alleges that the products or services were defective, improperly supplied, or not allowed. Because they are usually responsible for the disputed amount in additional chargeback fees, retailers who fall victim to fraudulent chargebacks are likely to suffer from financial losses.

Card Testing

Credit card fraudsters frequently use tiny, covert online purchases to test credit card information that has been stolen or counterfeited. This enables them to verify if the card details are authentic. If successful, they may sell the card details on the dark web or escalate their scam with larger purchases.

Identity theft

When thieves obtain personal information, such as addresses or social security numbers, they might use that information to create false accounts or make dubious purchases by posing as someone else.

Customers trick sellers

This type of fraud occurs when customers intentionally make purchases using their payment, and then say that the transaction was unsuccessful. In addition, they can lie that the product/service is not as described to force the seller to compensate. This causes huge losses for sellers.

Account hijacking

This is kind of a common form of today’s merchant fraud. Fraudsters will gain unauthorized access to users' accounts. They fraudulently logged into accounts using stolen data and then made unapproved transactions. Changing passwords and taking private or sensitive information are a couple of frequent practices.

Preventive Steps To Guard Against Merchant Fraud

Merchants can put in place some preventive measures and security best practices to lessen the risk of merchant fraud and safeguard their companies, such as:

Using fraud detection tools

Nowadays, it's become common to utilize software and tools to identify and stop fraud. Specially designed tools are now available widely for sellers to monitor transactions. They enable them to identify suspicious activity quickly and take appropriate action.

Advanced settings for authentication

This is another security step that a lot of people employ. When a device signs in, the vendor employing this method will install two-factor authentication (MFA) such as biometric verification, an OTP, or security warning messages. Vendors will be able to control the devices connected to their accounts.

Transaction monitoring

To spot anomalies or fraudulent transactions, merchants should routinely examine transaction logs, account activity, and payment processing systems. This will enable them to deal with unforeseen circumstances quickly.

Verify the identification of the customer

Sellers should take steps to confirm the buyers' identities. Among the techniques of verification are address verification (AVS), card verification codes (CVC), and buyer identification checks during transactions.

Education and training

Finally, it is suggested that vendors arrange for regular, short-term staff training sessions. This solution will let every employee be on the lookout for inappropriate behavior during transactions and quickly put an end to it.

Payment service providers, financial institutions, and enterprises all suffer grave consequences as a result of merchant fraud. This dishonest behavior results in monetary loss, harm to one's reputation, and legal issues. Through this answer, businesses can clearly understand different types of seller fraud and then take safety precautions. By employing state-of-the-art fraud detection technologies, buyers or sellers can effectively reduce the risk of fraud and help safeguard the integrity of transactions.

As a top provider of secure payment solutions, PayCEC is committed to helping companies protect themselves against fraudulent acts, including merchant fraud. PayCEC employs cutting-edge techniques to stop fraud such as the famous PCI DSS Compliant, 3D Secure, data encryption, tokenization, etc, not to mention the 24/7 support from the company as well.

PayCEC offers merchants a safe and reliable platform to handle payments and reduce fraud risks in addition to encryption and proactive monitoring technologies. Utilize PayCEC right now to ensure that fraud and illegal access won't affect your transactions.