Payment fraud runs the gamut, and nearly every member of the entire payment chain has something at risk. Customers worry about their information being stolen or abused; merchants worry about criminals buying things with fraudulent information or stealing sensitive customer data; and payment companies have to worry about criminals in every area.

Everyone, whether buying or selling, should be aware of the types of fraud that exist. Here’s a list of five major types of fraud in the payments world.

Skimming is one of the most famous types of payment and card fraud. The term refers to the method of stealing information via a small device called a skimmer, which is inserted into the legitimate payment terminal without the customer or merchant realizing it. The skimmer steals and stores the card information, which criminals can then later load onto a fake duplicate card.

Skimming has been vastly decreased by EMV, the chip card technology which has led to an overall lowering of card-present fraud.

Friendly Fraud
With friendly fraud, a customer purchases a product and receive the goods and/or services, only to later falsely claim that the transaction never happened. The burden of proof is then on the merchant to prove the transaction took place, which can be especially difficult in certain verticals.

Friendly fraud is a type of chargeback, and some sources place chargeback fraud as high as 86% of total chargebacks. EMV has been able to significantly cut down on fraudulent in-person transactions, but struggles in the face of friendly fraud. Other security solutions and general precautions are now arising to decrease friendly fraud.

Identity Theft
Identity theft is the fraudulent acquisition and use of sensitive, identifying personal information. Identity theft is a large problem in today’s society as more and more sensitive information moves online. As data breaches grow in size, more and more people face the risk of identity theft.

In payments, because EMV has successfully helped to cut down on in-person fraud, online fraud has become the new battleground between criminals and payment companies. E-commerce generally offers criminals an easier path toward identity theft. As a result, payments companies have come up with more advanced solutions to improve the verification process and identify red flags.

Any article about fraud would be incomplete without phishing. Phishing is the practice of sending seemingly official e-mails to steal sensitive personal information.

Phishing often used to be associated with small-scale and often individual attacks (think “I am a Nigerian prince”), but phishers are becoming increasingly ambitious. Several high-profile incidents have recently featured phishers breaking into entire companies by using a combination of phishing and social engineering. Not only that, phishers often imitate companies themselves in forged B2C emails, often creating believable replicas of legitimate company email designs.

Merchant Cash Advances
Using his or her own card, a merchant or employee completes a sales slip, submits it to the acquirer but receives no merchandise or service. Instead, the merchant simply opens the register and takes out cash equal to the sales slip total.

Merchant cash advances are a major red flag to payment companies, though on occasion merchants will do them out of naivete and not malice. This and many other red flags are often associated with laundering or other types of merchant fraud schemes, and payment companies are constantly on the lookout for patterns and tactics which correlate with fraud.

​​Fraud 101: 5 Types of Fraud You Should Know

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