5 simple strategies for preventing fraudulent transactions in 2023

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Here is all you need to know about Union54, chargeback fraud and the USD virtual card palava

Did you know:

  • eCommerce fraud losses will exceed $48 billion in 2023, up from over $41 billion in 2022 (Juniper Research).
  • 75% of eCommerce businesses saw an increase in fraud attempts in 2021, and chargeback losses due to fraudulent eCommerce transactions reached $6.4 billion in the same year, a rise of 50% compared to 2020 (Statista).
  • By 2030, total payment card volume could top $79 trillion; of that, an estimated $49.32 billion will be lost to criminal fraud (Nilson Report).

There’s more.

Juniper Research says global merchant losses due to online payment fraud would top $343 billion between 2023 and 2027. That’s more than 350% of Apple’s reported net profits for the fiscal year 2021.

Do you get the immense scope of the losses now?

This article will review proven strategies to stop fraudulent transactions in 2023. You will learn easy-to-apply strategies to help you fend off cyber criminals and online shoplifters.

Let’s dig in.

Use fraud detection software to thwart fraud attempts

Fraud detection software solutions use machine learning algorithms to evaluate transaction data and look for loopholes for fraudulent activities. These tools can analyze parameters such as device information, IP address, location, transaction history, and buyer behaviour to track fraudulent activities that might escape the human eye.

More so, using fraud detection software, you assess the risk score for each transaction to evaluate the likelihood of fraud. With that, you can set up rules to approve or reject transactions automatically, reducing the risk of financial loss.

Research shows that such proactive strategies can save businesses up to $5.1 billion annually by reducing fraudulent transactions. More so, a study by the Association of Certified Fraud Examiners found that companies that use fraud detection software have a 50% lower rate of fraud losses than those that do not.

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Some of the popular fraud detection tools to consider include:

  • FraudScore: a leading, high-precision, feature-rich fraud-fighting platform
  • Signifyd is an eCommerce fraud protection platform with three services for companies: revenue protection, abuse prevention & payment compliance.
  • Riskified: an eCommerce fraud management platform. Global brands partner with us to stop fraud, boost sales, and cut costs.
  • Sift Science: a security blanket using many data points to make intelligent decisions on all orders.
  • Forter: for unmatched fraud prevention and protection for digital commerce with real-time choices for every customer interaction.
5 simple strategies for preventing fraudulent transactions in 2023
Integrate multi-factor authentication

Multi-factor authentication (MFA) is a productive way to prevent fraudulent transactions, as it demands users provide two or more forms of authentication to complete a transaction. That can include a password, a one-time code sent via SMS or email, or a biometric identifier such as a fingerprint or facial recognition.

Using MFA can considerably lessen the risk of account takeover fraud and identity theft, as MFA can block 99.9% of automated attacks on accounts, according to a report by Google.

Integrating MFA into your business’s authentication processes is straightforward. Most modern platforms and software applications offer MFA as a built-in feature. For example, many online banking platforms require customers to provide a one-time code (OTP) sent to their mobile phone or email to complete a transaction. 

Similarly, many online shopping platforms need customers to enter a verification code issued to their cell device phones to confirm their purchase.

To integrate MFA into your business’s authentication process, consider the types of transactions your business processes and the risk associated with each transaction. For instance, high-value transactions or transactions involving sensitive data may require more stringent authentication measures than low-value transactions.

Educate your customers about the importance of MFA and how to use it to avoid friendly fraud. Many customers may need to become more familiar with MFA, so it is essential to provide clear instructions on how to set it up and use it. Customer support and guidance ensure that your customers use MFA correctly and reduce the risk of fraudulent transactions.

We’ll talk about that in more detail in a subsequent section.

Read also: Chargeback fees and how to avoid them legally

Use KYC to pre-empt fraud

Fraudulent transactions do not only lead to significant financial losses. They result in a damaged business reputation as well. One effective strategy for pre-empting such headaches is using Know Your Customer (KYC) processes. 

KYC is a set of procedures that verify the identity of a customer or client. Financial institutions typically use them to prevent money laundering and other financial crimes. However, KYC processes can also be used by eCommerce merchants to prevent fraud.

Here are some ways that eCommerce merchants can use KYC to pre-empt fraud:

  1. Verify customer identity: Ask buyers to provide standard documents like government-issued identification, such as a driver’s license or passport. Also, verify the customer’s address and contact information to reduce the risk of fraudsters using stolen identities to make purchases.
  2. Screen for high-risk customers: KYC processes can also be used for high-risk customers, such as those with a history of fraudulent activity or those using suspicious payment methods.
  3. Monitor customer behaviour: For example, if a customer suddenly starts making large purchases or purchases from a new location, this could be a red flag for fraud. By monitoring customer behaviour, you can identify potential fraud early and take action to prevent it.
  4. Implement multi-factor authentication: Require a password and one-time code sent via SMS or email to make it more difficult for fraudsters to access customer accounts and make fraudulent purchases, as noted earlier.

Always confirming the customer’s identity to ensure the individual making the transaction is authorized to do so helps you lower fraud risk. Using identity verification measures also enables you to meet legal requirements and preserve your company’s standing as a reliable and secure entity.

5 simple strategies for preventing fraudulent transactions in 2023
Monitor transactions

Another essential measure you can apply to ensure fraudsters don’t use your hard-earned revenue to finance their expensive lifestyle is to monitor transactions as they come. 

By monitoring transaction data, you can quickly discover red flags and take remediation actions to stop further fraud.

Use the following tips to keep an eye on your transaction details:

  • Monitor transactions in real time. Real-time transaction monitoring involves using automated software to flag suspicious activity, such as transactions exceeding a certain threshold or outside regular business hours.
  • Analyze customer behaviour. Customer behaviour analysis evaluates transaction history to identify patterns and flag suspicious activity. For example, a customer suddenly making a large purchase outside their typical spending pattern could be a warning sign of fraud.
  • Review orders manually. Besides automated software, you can also do the old-fashion manual order review to verify the transaction’s legitimacy.
  • Analyze trends. Trend analysis involves reviewing transaction data to track patterns and changes that could indicate fraudulent activity. For example, a sudden increase in chargebacks or refunds could indicate fraudulent activity.
  • Evaluate the geographic location of customers. There’s a reason some merchants don’t ship orders to specific areas. Analyzing your customers’ geographic locations helps you identify transactions outside the customer’s place, which could indicate fraudulent activity.

For transaction monitoring to be quite effective, you must:

  1. Maintain a record of each transaction in your company, including dates, times, order value, and transaction description. 
  2. Keep tabs on the actions of those with access to transaction data, including tracking employee logins and their activities while gaining access to transaction data.
  3. Set up alerts to notify of suspicious activity, such as transactions exceeding a threshold or outside regular business hours. 
  4. Establish a system for comparing different data sets, like bank statements, to ensure that all transactions have accurate records.

Read also: How to deal with fraudulent Shopify chargebacks in 2023

Educate your customers

While educating your customers on fraud trends and patterns they must avoid can be an added labour, it’s a critical strategy to ensure they don’t fall victim to fraudulent activities that might affect your business. Another advantage is that it helps you build a community around your brand.

Ensure your users know the dangers of fraud and the precautions they can take to stay safe. Some standard precautionary measures customers can take includes:

  • Not sharing personal information or passwords with anyone
  • Using secure payment gateways for transactions
  • Checking their bank and credit card statements regularly for unauthorized transactions
  • Avoiding public Wi-Fi networks when making transactions
  • Contacting the business immediately if they suspect fraudulent activity

Below are some actionable ideas for educating your community about online scams and payment frauds.

  1. Publish articles and short clips that provide information on preventing fraud as online resources. You can make these resources accessible via email newsletters, the company website, or Social Media. 
  2. Hold training sessions like workshops or webinars on best practices for fraud prevention and online privacy.
  3. Encourage customers to report suspicious activity immediately by providing a hotline or email address where customers can report fraudulent activity. By encouraging reporting, you can quickly identify and respond to fraudulent activity.

Indeed, no fraud prevention strategy will entirely remove the danger of fraudulent conduct. Yet, applying the best practices listed above can help you considerably lower the possibility of fraudulent transactions. 


This article was written by Tom-Chris Emewulu, Chargeflow’s Digital Evangelist. You can find him on Social Media via @tomchrisemewulu.


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