The digital economy is on its way to a total value of $16.5 trillion by 2028. This growth has also led to an increase in fraud, targeting each step of the user journey. Traditional security tools are insufficient against today’s AI-powered threat actors.
Instead, companies need advanced fraud detection and prevention solutions. These platforms enable companies to use real-time monitoring, deep analytics, and payment protection technology to stop fraud in its tracks. Read on to learn more about what internet and software fraud entails, its common tactics, and how businesses can safeguard themselves.
What is Internet and Software Fraud?
Internet and software fraud occurs when bad actors gain unauthorized access to digital platforms and payment information through stolen identities, account takeovers (ATOs), and phishing. Breached payment data is readily available on the dark web, making it easy for fraudsters to inflict financial damage and erode consumer trust.
Why is Internet and Software Fraud Growing?
Companies tend to focus on fast and easy onboarding, and this can be accompanied by a lapse in security, leaving companies exposed to fraud. Here are the key reasons why this fraud is becoming more frequent:
- Increased Subscription and Transaction Volume: When processing thousands of concurrent purchases, it’s tough for companies to reliably verify users and prevent fraudsters from slipping between the cracks.
- Sector-Specific Vulnerabilities: Subscription services frequently use free trials and promotions to attract customers, which has led to an increase in promotional fraud.
- Weak Account Security: Today’s fraudsters use generative AI tools like FraudGPT to bypass legacy security measures and launch highly sophisticated schemes.
Industries with high-value and frequent online transactions are often targeted the most. Investigating incidents, resetting accounts, and dealing with the aftermath of fraud incidents takes time and resources, making it harder for organizations to grow and run smoothly.
Common Types of Internet and Software Fraud
Fraudsters employ various methods to abuse internet and software platforms. To develop an effective mitigation strategy, businesses must understand where these threats are coming from and how they typically operate. The most frequently used tactics include:
- Payment Fraud: Fraudsters use stolen card information or exploit system vulnerabilities to carry out unauthorized transactions. Carding markets on the dark web offer payment data for just $0.15 per card, allowing cybercriminals to easily make mass fraudulent purchases on platforms. Attackers can also intercept one-time passcodes (OTP) to gain access to mobile wallets and conduct transactions without the wallet owner’s consent.
- Subscription Fraud: In this type of attack, cybercriminals use illegally acquired credentials or synthetic identities to access recurring services for free. Other forms of fraud that often target subscription-based platforms include account takeovers, promotional abuse, and chargeback fraud.
- Account Takeover (ATO): By using stolen personal information or creating synthetic identities with AI, bad actors can access other accounts and take over control. Once an account is compromised, fraudsters may drain account credits, steal payment information, or sell access to others.
- Card Testing: This is a form of fraud in which cybercriminals test stolen cards by making small transactions to verify if they are still active, often abusing subscriptions with low-cost trials.
- Chargebacks: Chargebacks occur when users claim they did not authorize the transactions, and have their bank force a refund that usually incurs a chargeback fee for the merchant. These disputes can either be caused by unauthorized purchases made by a fraudster, or by the legitimate cardholder participating in first-party fraud to get their money back.
- Marketplace Fraud: This threat involves fraudulent sellers generating fake sales data to boost their standing or attract unsuspecting buyers. They may also create entirely fake product listings or use AI to generate convincing reviews.
- Promotional Fraud: In this type of fraud, cybercriminals use stolen credentials or disposable emails to create multiple accounts in quick succession so that they can access free trials or promotional discounts without paying for services. This abuse is highly prevalent in media and streaming platforms, where trials are vital marketing strategies.
Unique Challenges Facing Internet and Software Businesses
New fraud tactics, rising competition, and a lack of security awareness have serious challenges for digital-first companies. Tools and techniques used by bad actors are becoming more complex, causing businesses to face multilayered risks that are difficult to monitor and mitigate. Here are the most pressing security challenges facing organizations on the internet and software sectors:
- Data Breaches: Major breaches expose sensitive customer information, leading to payment fraud, identity fraud, and ATO attacks. France’s second-largest ISP was hacked in late Oct 2024, exposing the personal data of up to 19 million users. This follows after the streaming platform Roku confirmed that fraudsters had compromised 15,000 accounts.
- Password Reuse: Up to 78% of users employ identical passwords to access multiple accounts, increasing the risk of data and financial theft, and payment fraud. Cybercriminals purchase lists of stolen passwords and usernames, knowing that a single valid password will likely grant access to several accounts. In fact, password reuse is said to be the likeliest reason why the Roku breach was so successful.
- Regulatory Hurdles: Regulations like the GDPR in Europe and the CCPA in California impose strict compliance requirements on how customer data is handled. Staying up-to-date with evolving laws and standards helps protect companies, and avoid fines or potential lawsuits in the event of a breach.
- Increased Competition: Many businesses struggle to balance security with a frictionless user experience needed to win against competitors prioritizing speed and convenience. This is especially problematic for subscription-based platforms, where fast onboarding is a main differentiating factor.
How to Safeguard Your Business Against Internet and Software Fraud
Despite the challenges, strong security remains well within the reach of digital businesses that embrace advanced technology and stay vigilant. Internet and software companies must adopt a multi-faceted approach to fraud prevention that uses sophisticated solutions. Here are the key strategies you can use to protect your platform:
- AI-Powered Automation: Implement artificial intelligence systems to automatically block risky transactions before they go through and reduce the need for manual reviews.
- Stronger Multi-Factor Authentication (MFA): Fraudsters often target account access as their initial point of entry. Go beyond traditional MFA and consider integrating device intelligence, IP address analysis, behavioral analytics, and high-risk activity monitoring to verify users.
- Continuous Risk Monitoring: Businesses cannot rely on identity verification alone. Monitoring users before, during, and after login helps prevent fraud proactively. Implement holistic monitoring of user behavior to flag suspicious activity before it becomes a problem.
- Fraud-Oriented Data Analytics: Use insights from fraud prevention data analytics tools to identify emerging fraud trends and simplify chargeback resolution.
Sift Solutions: How We’re Leading the Fight Against Internet and Software Fraud
Sift is the comprehensive solution for digital businesses facing advanced and persistent fraud attacks. With real-time threat detection, adaptability via AI, and robust data analytics, Sift enables companies to protect their platforms without compromising the user experience. Here’s how it works:
- Machine Learning: Sift’s advanced fraud detection tools identify threats instantly, reducing security costs and the need for manual transaction review.
- Global Data Network: Leverages data from trillions of online transactions to predict and prevent fraud with unparalleled accuracy.
- Customizable Security Layers: Businesses can create tailored fraud detection rules to stay agile in the face of emerging threats.
- Drive growth through enhanced customer experiences: Accept more transactions and retain loyal customers with pinpoint accuracy and dynamic friction.
- Prevent fraud and build trust in milliseconds: Protect revenue and maintain customer trust through real-time fraud detection and prevention.
- Stay lean while scaling fraud operations: Grow fearlessly with advanced, AI-powered operations and effective rulesets.
Sift’s impact is evident in the success of Patreon, a leading crowdfunding platform for online creators. Patreon, one of the leading crowdfunding platforms for online creators, realized these benefits first-hand. The business used Sift to cut fraud losses by 95% and automate their fraud operations. This allowed them to handle increasing traffic without compromising user trust or security.
To mitigate risk and stay ahead of bad actors, organizations must level up their security with fraud prevention designed for internet services. Learn more about how Sift helps companies protect their operations, ensure user trust, and stay ahead of evolving fraud tactics by signing up for a free demo today.
