Over the next four years, global B2C online payment fraud is expected to surge by over 40%, causing billions in losses. This spike is a direct threat to consumer trust in brands, as 76% of customers will abandon a brand in the event of payment fraud. With global online transactions steadily growing year-over-year, the industry is seeing the emergence of highly sophisticated fraud. From AI-powered synthetic identities to convincing phishing emails and advanced automation, scammers hijack technologies to compromise payment systems.
To stop business-to-consumer (B2C) internet and software fraud, companies must adopt best-in-class security tools and strategies. Read on to find out how to protect your business’ revenue and reputation.
How Does B2C Payment Fraud Affect Your Business?
B2C internet and software fraud costs businesses money and damages consumer trust. It also leads to chargebacks, lost revenue, and negative customer experiences. Here’s a closer look at how it impacts business:
- Causes Financial Damage: Experts predict global payment fraud costs to cross $362 billion over the next four years. These costs go beyond the immediate stolen transaction and include chargeback fees, investigation expenses, and customer churn.
- Hurts Customer Trust: Businesses that process customer payments are prime targets for fraud. A data breach or successful scam damages customer trust, leading to lost sales and a damaged reputation. This has a spiral effect that loses customers and prevents new customers from joining.
- Burdens Operations: Manual transaction reviews, investigations, and post-incident customer support consume thousands of valuable hours each year. This strains teams, diverting their focus from core processes and leading to a loss of productivity.
- Risks Regulatory Compliance: Fraud that results in the exposure of private information could leave your business vulnerable to costly lawsuits and legal penalties for violating safety regulations like the GDPR or the CCPA.
Types of Common B2C Payment Fraud
Fraudsters use various techniques to break through company security, such as social engineering, synthetic identities, and AI-driven attacks. To stop them, business leaders must understand the different forms of B2C payment fraud, including:
- Credit Card Fraud: The illegal use of someone else’s credit card information to make purchases. There are even fraud networks that steal and sell credit card information online, making them complicit, but not easily traceable.
- Chargeback Fraud: When someone falsely claims a valid purchase as unauthorized, it leads to a reversal of the payment and the funds being returned. Also known as first-party fraud, this allows the customer to keep the service without having paid for it.
- Refund Fraud: Abusing refund policies for financial gain. Imagine someone buys a service online, uses it, and then pretends they never got it to get their money back.
- Card Testing: Fraudsters test stolen credit card numbers by making small transactions to check if the card is still valid. The value of each purchase is intentionally kept low to remain under the threshold amounts typically set up in automated monitoring systems. This information is either resold or used to make quick transactions before it gets flagged for theft.
- Account Takeover (ATO): A scammer gains unauthorized control over a user’s account, typically through stolen credentials. With access granted, they can make illegal purchases using the victim’s payment information or steal personal data.
Industries Most Vulnerable to B2C Payment Fraud
Industries handling high-value transactions or sensitive customer data are particularly susceptible to B2C payment fraud. Some examples include:
- Consumer-Oriented SaaS: Technology platforms with subscription models are vulnerable due to their accessibility and ease of exploitation. These include technology platforms hosted on web browsers or mobile apps where users pay for subscriptions to tools or applications. Easy access makes these systems low-hanging fruit for hackers looking to exploit trial offers, create fake accounts, or use stolen payment information to pay for services.
- Digital Entertainment Services: Streaming services for movies, TV shows, music, audiobooks, and even games generate high transaction volumes. High transaction volumes and the digital nature of this industry’s products make it easier for scammers to commit chargeback fraud and share access illegally.
- Online Gaming Services: Online gaming and gambling handle billions in transactions, including purchases of games, in-game purchases, microtransactions, and other types of subscriptions. These platforms see large volumes of transactions, making it harder to detect fraudulent activity.
- Digital Communication Tools: Apps for messaging, email, or social media that may require subscriptions for premium features or exclusive content. Cybercriminals may use stolen credit card details to unlock paid features or scam users with fraudulent subscriptions.
- EdTech and Online Learning Platforms: Fraudsters can exploit vulnerabilities in identity verification, payment processing, and communication channels to steal personal information, commit financial fraud, distribute malware, or peddle fake credentials. The shift towards remote learning has amplified these risks.
Top Advanced B2C Payment Fraud Prevention Techniques
Fraudsters are getting more sophisticated by using AI to outsmart traditional defenses. To combat these evolving threats, businesses need to evolve as well. Consider these actionable strategies to prevent internet and software fraud:
- Adaptive Machine Learning Automation: Integrate AI-based, self-evolving fraud detection systems that learn from each transaction, adapting to new scams and cyber attacks as they emerge.
- Real-time Transaction Monitoring: Automatically review each transaction with instant risk-scoring tools based on predictive modeling. Also, use a solution that cross-references global fraud databases to protect your system against the latest fraud tactics.
- Anomaly Detection: Use advanced systems to track customer behavior and establish a baseline for acceptable behavior. That way, when any deviation occurs, such as changes in purchasing habits or account settings updates, these tools can instantly identify potential breaches and take corrective action, such as blocking suspicious transactions.
- Collaborative Fraud Intelligence Network: Sharing intelligence between similar businesses and other industries helps create a stronger, more effective system for fighting fraud. Businesses can get a clearer picture of customer risk with insights from a broader network. Sift’s leading fraud event network processes more than one trillion events per year to achieve high levels of fraud detection accuracy.
- Device Fingerprinting: Device fingerprinting is an identity signal that lets systems associate devices with users by marking data such as browser settings, operating system, and hardware details to identify if any activity is being conducted outside of usual parameters. These strengthen fraud prevention efforts by adding another layer of authentication.
- Account Takeover Protection: B2C payment fraud often occurs at the point of log-in. Multi-factor authentication (MFA), advanced behavioral analysis, and dynamic friction can prevent unauthorized access to user accounts.
How Sift Helps Prevent Fraud for B2C Internet & Software Brands
As the threat of B2C payment fraud continues to grow and evolve, your financial stability and customer relationships are at stake. From refund fraud to account takeovers, cybercriminals have a wide range of illicit tactics at their disposal. To tap into the benefits of preventing payment fraud and safeguard their bottom line, organizations must embrace advanced, AI-powered tools like Sift.
The Sift Platform is the leading AI fraud decisioning solution designed to address B2C payment fraud with precision and adaptability. Companies that leverage Sift gain:
- Real-time fraud detection and prevention: Instantly identify and block fraudulent transactions using advanced AI algorithms for enhanced accuracy and speed.
- Automated decision-making: Reduce the need for manual reviews by automating fraud detection processes, saving time and operational costs.
- Improved chargeback rates: Achieve up to a 70% reduction in chargebacks compared to industry averages, safeguarding your profits.
- Data consortium: Powered by Sift’s extensive network of over one trillion events annually, this model uncovers emerging fraud patterns across industries, providing businesses with proactive, data-driven protection.
- Decision explainability: Gain transparency into fraud decisions through detailed insights into how risk scores are calculated, allowing fraud teams to address risks confidently and refine strategies as needed.
- Level of control: Customize fraud prevention processes with no-code tools, defining specific criteria and automating responses like blocking, accepting, or flagging transactions.
- Enhanced customer experience: Minimize false positives to protect legitimate customers, ensuring secure and seamless transactions.
- Scalable fraud protection: Adapt to ever-evolving fraud tactics with flexible, AI-driven solutions that grow alongside your business needs.
- Comprehensive transaction security: Guard against diverse fraud types, including alternative payment abuse, while ensuring compliance with industry regulations.
Ready to learn more? Request a demo and find out how Sift can prevent fraud, protect customers, and drive sustainable growth for internet and software businesses.
