Managing Online Payment Fraud Efficiently

Banking has become digital. The payments sector has been especially impacted by digitization. But with the growing use of digital payments, fraudsters have found a new avenue for success. According to a 2022 payment fraud study, merchants spend an average of 10% of eCommerce revenue on fraud management.

Every merchant and business needs to manage payment fraud to mitigate losses. Constant payment fraud even acts as a red flag for the organization. Preventing payment fraud can even help organizations scale at the right pace.

One of the biggest challenges of fighting online payment fraud is that interconnected networks are complicated.

Every single transaction could be a potential attack point for the organization. Regardless of the threat, an organization has to provide a seamless payment experience.

There are a lot of moving parts that customers have to care about, such as interfaces, websites, apps, and back-end services. On top of all of this, additional services such as ID verification, authentication, transaction monitoring, and more.

Banks need to be highly careful about the ever-changing nature of the payments industry, and the new techniques being used by fraudsters. Maintaining a safe and seamless payment environment for customers is becoming increasingly challenging.

Fortunately for banks and financial service providers, preventing payment fraud doesn’t need to be super complicated, expensive, or time-consuming. The best way to move forward is to take a risk-based approach that covers your specific needs and aligns with your organizational goals.

Knowing Your Customers is Crucial

Regulated industries have been struggling with fraudulent transactions. Since they have to fight fraud all the time, they have better fraudulent transaction handling. Businesses in these industries have well-established procedures to identify customers and understand the risks that come along.

KYC procedures are made to design and prevent money laundering and offer intelligence into the nature of the customer. You need to know who the customers are, and if they are real.

KYC happens during the customer onboarding process. You need to ensure that fraudsters can’t even create an account. While these processes tend to weed out fraudsters, they can also hurt genuine customers. Your fraud prevention process should not create unnecessary friction in the customer onboarding process.

You absolutely need to implement seamless, effective ID verification solutions. It is the first-ever step in managing payment fraud.

Understanding Payment Flows

While it is possible that every single transaction is fraudulent. Businesses still need to monitor, flag, and analyze transactions to provide ongoing intelligence and add another level of risk management.

As payments are becoming faster, the increasing speed of payments requires faster payment information processing. Latest innovations such as real-time payments will require solutions that are incredibly sophisticated.

Financial institutions need solutions that can help them understand who their customers are, and whether the information provided to them is accurate or not.

In the EU, legal obligations require strong customer authentication for multiple transactions. Two-factor authentication such as confirming a text, email, or in-app notification, is an authentication technique that businesses can deploy.

A new verification method has come out called 3D Secure 2.0, and it is backed by all the major credit card providers.

Some other dynamic fraud detection tools same as transaction monitoring can also help in risk mitigation. Some online fraud mitigation processes can help in:

  • Spikes in activities
  • Exceeding thresholds
  • Out-of-area or unusual cross-border activities
  • Changing purchase patterns
  • Consumer alerts
  • Credit reports
  • IP address discrepancies
  • Fraudulent patterns

Integrate Security into the Process

Managing payment fraud should be a natural part of the process. It should not feel like an additional task that you have to manage. Security is a crucial part of running a successful digital company and it contains a lot of factors. If there are a lot of weak points in your security, that’s the place where fraudsters will target.

There are some methods and solutions that every business needs to have to prevent fraud:

1. Tokenization

The best way to protect customers from a data breach is to tokenize the information. In the case information is stolen, it won’t mean anything to anyone other than the transaction and the retailer. If the retailer is hacked, the hackers won’t be able to gain anything from all the data.

What’s even better is that the Payment Card Industry promotes this practice and it works with almost all existing POS systems. It replaces the actual 16-digit credit card number with a 16-digit token. It doesn’t add anything to the payment process, and it cuts down on compliance costs.

2. Encrypt the Information

For all major retailers, end-to-end encryption is a great option to prevent fraud. PCI standards don’t allow storing credit card information after a transaction, and converting that data via an algorithm protects the data while still allowing authorized use. But you need to keep one thing in mind: encryption is an expensive process that doesn’t work well for small and mid-sized companies.

4. Address Verification

Currently, all the eCommerce address verification checks are done using the Address Verification System (AVS). AVS can check the address on the credit card file to the data provided by the customer.

AVS checks the zip code and the street number of a billing address and it compares those numbers to the zip code and street number of the credit card owner. Visa, MasterCard, and American Express support AVS in the U.S., Canada, and the UK.

But, the AVS isn’t perfect. Customers could have moved to a new location, or they may be ordering things online for someone else. In these situations, the AVS just falls apart. What works better is the address verification solution offered by DIRO. DIRO address verification can verify customer addresses straight from government sources, thus eliminating the risk of payment fraud.

manage online payments fraud

How MasterCard is Using Open Banking to Make Fasten ACH Payments?

The payments industry is continuing to shift, and the latest technologies are bringing changes every single day. The switch from cash to checks and digital payments such as ACH has increased significantly. Especially in high-dollar or recurring payments such as rents and utility bills. These technological advancements provide a great experience for both merchants and consumers. Simply said, it provides better choices, simple experiences, and greater speeds when it comes to payments. But these advancements come with a couple of challenges. 

Unsuccessful transactions create unnecessary friction in the process and force customers to find new methods. And in some cases, it can cause customers and merchants to pay a penalty fee. There’s always a risk of fraudulent accounts or account credentials being used. 

To improve the process of these payments, Mastercard unveiled a new range of smart payment decisioning tools that help in reducing the friction of the process.

The new process named:

  • Payment Success Indicator
  • Payment Routing Optimizer

Rely on real-time bank data consented by a user to show payment indicators that raise successful payment completion rates and reduced transactional costs.

When it comes to ACH transactions, NACHA reported that the payment volume on the modern ACH Network increased by 7.7% in the third quarter of 2021. This shows that customers are responding positively to making direct payments from their bank accounts.

With the increased volume of ACH payments, there are a few challenges that may show the slow adoption of services, delaying the improved merchants and consumer experience. 

  • Settlement Risk: Lack of payment visibility leaves merchants exposed to potential returns, which adds friction to the customer-merchant relations. When a customer walks away from the payment process, the merchant of the surety of ACH Payments. This can increase the costs for merchants as it creates a costly return process. 
  • Security: At times, the merchant experience failed payments all because of a consumer adding fake or incorrect credentials. 

Payment Decisioning: Having multiple ACH payment options such as the payment rail and settlement date, provides consumer choice and minimizes expense. However, a lack of greater visibility can add risk to payment settlement.

Minimizing Payment Failure, Boosting Cash Flow

So how does fixing these pain points play out in the market? According to research done by Mastercard, every time an ACH payment fails a merchant has to pay some fee. Fraud continues to be a major issue in payments. According to a 2021 fraud survey, checks and wire transfers are by far the most preferred methods that fraudsters use to make money. In recent times, the ACH debits have seen an increase in fraudulent activities as well. 

Now add everything that open banking has to offer. By leveraging consumer-permissioned data, these challenges can be eliminated or reduced. 

With the new Payment Status Indicator, the risk of failure is reduced by scoring the likelihood of a payment going through even before initiating it. Then with Payment Routing Optimizer, payment originators are provided a recommendation for the most optimal payment day and payment rail to choose from. This increases the chances of a payment succeeding and offering great speed.

Better Data, Better Decision Making

With smart data comes better decision-making. This is true in almost every part of life, and it’s especially true in handling account-to-account payments. Leveraging machine learning and predictive modeling, Payment Success Indicator, and Payment Routing Optimizer can help in eliminating ACH payment failure. This can easily improve cash flow and improve the bottom line while creating a more positive experience for customers.

Customers are using more and more apps and services that leverage digital checkout and payment methods. It’s more crucial than ever to minimize fees and reduce costs, reduce the risk of fraud, non-sufficient funds, and returns and make payment settlement a cost-effective process.

By leveraging consumer-permission banking data, the Payment Success Indicator offers the payment originator a score out of 10 future calendar days, and individual scoring of each of these days. Scoring is based on real-time balance and historical behavioral risk patterns. This system is used to evaluate the likelihood that a given amount will settle successfully. 

If there’s a payment that has a high risk of settlement, or non-sufficient funds over a specific time period, then the merchant can use the information available to request an alternative payment method.

The analytics engine then provides a score separating the risk factors across 4 separate tiers, providing merchants with the advantage of maximizing available customer data. This helps in better decision-making. 

Here’s a breakdown of risk levels:

  • Tier 1: Highly likely to settle
  • Tier 2: Likely to settle
  • Tier 3: Less likely to settle
  • Tier 4: Do not process, Errors present

Each score includes weighted reasons for the scoring. Some common factors include:

  • Account balance
  • NSF history
  • Consumer spending
  • Consumer deposits
  • Other financial data

Payment Routing Optimizer will provide the payment rail, cost, and payment date suggestions based on the scoring provided by the Payment Success Indicator. 

The technology aims to eliminate the friction of the process of choosing between digital payment options with future updates of the Payment Routing Optimizer including a debit card option.

mastercard

Guide on Real-Time Payments and Verifying Account Identity

NACHA, the Electronic Payment Association overseeing the ACH network, recently made some changes to its Operating rules regarding ACH payments. Based on the new rules, originators or WEB debit entries are asked to use a “commercially reasonable fraudulent transaction detection system” to verify users for fraud. Beginning on March 19, 2021, the rule will change to explicitly require “account validation” or “bank account verification” to be part of the new fraud detection system.

Payment merchants who don’t already have bank account verification technologies in their fraud detection systems need to add them. They should also educate themselves about the rule changes and find ways to comply with the new regulation put out by NACHA. There are tons of educating yourself about the guidelines and how to make sure you’re complying with the regulations.

Bank Account Verification and Fraud

The changes in NACHA rule changes come as faster payment services, these include NACHA’s Same Day ACH. Ever since Same-Day ACH Payments, it has just seen an upward growth. For example, in 2017, Same Day ACH volume exploded by 137% to $159.9 billion in total payments. Although with faster payments, there’s also an increased risk of payment fraud.

“As the adage goes, with faster payments comes faster fraud, so implementing preventative measures upfront to identify fraudulent activity before it is set in motion is receiving the most focus,” said Sarah Grotta, director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

“When transactions occur within seconds instead of hours or days, there isn’t the time to assess the transaction itself, so ensuring the validity of the account is critical.” Says Mercator Advisory Group.

As bank account verification is crucial, NACHA is making it mandatory for every single ACH transaction. When the changes finally take effect, any and all payment merchants that process WEB debits will need to have a bank account verification solution. All the merchants that use the ACH network will have to comply with this rule. Everyone that originates WEB debits, regardless of business size or industry they’re operating in will have to abide by these new rules. 

As millions of companies across thousands of industries use the ACH payment network, a whole range of use cases may be impacted by the changes in the rules. Here are some of the key payment examples that rely on ACH payments, especially if account information is collected by the originator:

  • Insurance company payments
  • Contributions to individual retirement accounts, SEPs, 401Ks
  • POS purchase
  • Utility payments
  • Tax payments
  • Charitable donations
  • Installment loan payments, including car loans, credit cards, mortgages, HELOCs
  • Membership payments

Account Verification Solutions in Real-Time Payments

Fortunately, the merchants who need to change their fraud screening services can leverage a lot of solutions to be compliant. However, not all the solutions are good enough at stopping fraud or working when it comes to real-time payments.

This is crucial because even if NACHA didn’t change the rules, merchants would be wise to take the account verification process seriously.

One method is ACH prenotification, also known as a prenote. It is a zero-dollar transaction that an originator sends to the issuing company before an actual debit or credit card. The goal is to validate the routing and accounting number at the issuing bank prior to sending through the actual transaction.

Although the prenote is effective at verifying the account number, it doesn’t offer any information about the account itself. It also takes up to three days, making it ineffective for faster payments.

There’s another solution for bank account verification is DIRO online document verification solution. DIRO can verify bank account information using bank statements in real-time by cross-referencing information from the issuing source. DIRO bank account verification solution can be the perfect tool for real-time account validation with faster payments.

real time bank account verification

Best Payment Options for an Online Marketplace

The marketplace economy is booming and it is becoming a very profitable industry. Currently, Amazon sells more products online every minute than any other store in the world. Now, think of the millions of other marketplace websites online, and how much revenue they generate every single day. It’s safe to say that online shopping has become our primary method of shopping.

Online marketplaces are websites or apps that connect buyers with sellers, and they offer a great level of convenience for the customers. Marketplaces act like the middleman, providing customers with the products they need by procuring them from the sellers. They charge a certain amount to provide this service. The amount of products that are being sold online has turned “marketplace payment processing” a hot topic. While the “storefront” style of eCommerce stores is still going strong, the changes in technology have provided new methods to connect buyers and sellers. Niche marketplaces are continuing to grow and will keep doing so in the near future. 

With customers spending almost $16 trillion in the Q3 of 2021, it’s more crucial now than ever to integrate payment processing solutions. These can lead to affordable, reliable, and secure collection of funds from customers. Account-to-account payment solutions like ACH, push-to-debit, and real-time payments offer businesses a great way to process payments. 

Instead of relying on outdated methods of payments like cards or paper checks for marketplace payment processing, account-to-account payment processing provides a better advantage to online marketplace owners.

Steps to Improve Marketplace Payments

Every single online marketplace needs to find an ideal platform for online payment processing. Online marketplaces need to have online payment processing methods to run as smoothly as possible when it comes to handling customer payments. 

Marketplaces are constantly accepting payments from buyers and paying their merchants. This is why it’s crucial to have a smooth payment process. But with an unsuitable payments integration. Without it, you may not know about unnecessary charges on both sides of the transaction. If you want your online marketplace to succeed, then you need to collect payments as smoothly as possible.

Important Aspects of Marketplace Payments

You need to make sure that the buying experience for customers is as smooth as possible. The ideal account-to-account payment solution builds a brilliant user experience and allows them to buy whatever they want.

The online marketplace user experience can be broken down into 5 main elements:

  • How easy is it for users to accomplish easy tasks
  • Once the user understands the design, how quickly can they perform a task?
  • Whenever a user returns, how easily can they reestablish proficiency
  • How many errors do the user makes, how severe do these errors are, and can customers prevent from making these errors?
  • Is the design pleasant to use?

Marketplace Payment Processing Options

1. Credit Cards

The first and foremost method should be credit cards. This is because of how commonly they’re used by customers all over the world. Accepting credit cards during the payment part is pretty common. Cards are available everywhere and they provide a convenient user experience for the consumers. Although, these cards are expensive for marketplaces. Most marketplaces tend to increase their prices to keep up with these costs.

2. ACH Payments

ACH payments can get rid of the mailing and managing of paper checks by sending funds from bank to bank accounts. This can reduce the time and cost of making payments for online marketplaces.

As online marketplaces collect payments from buyers and sellers, they need to have a simple monitoring process. ACH Payment integration can help in managing data in an easy-to-use format by monitoring transactions and reporting issues. Online marketplaces need payment service providers that allow businesses to operate smoothly, instead of slowing down the workflow.

3. Instant Payouts to Debit Card

Instantly send money to debit cards with push to debit payments. Online marketplaces can use these payment methods to combine the speed of card transactions and the affordability of account-to-account transfers. Marketplaces businesses want to receive payments quickly and this is a great way to do so.

4. Real-Time Payments

One of the newest payment standards in the United States is the RTP Network which is owned and operated by The Clearing House.

Real-time payments can be initiated at any time of the day. These are balance-sourced account-to-account payments that clear and settle near instantaneously.

How to Secure Payment Process?

While it is important to have a seamless payment settlement process, it is also crucial to make sure that the process is as secure as possible. The online marketplace can reduce the risks of payment fraud by verifying payment merchants before onboarding.

DIRO online document verification solution can be used by online marketplaces to verify online payment processors. This can help in reducing chargeback fraud, and other types of payment fraud.

online marketplace

ACH Payment

Payments have come a long way over several decades. All the way back in 1974, people had to carry dimes with them to make calls from payphones, and copies were made on a mimeograph. Over time, payments have changed and so has ACH payment. The ACH payment method has improved with the help of technologies and the network keeps on providing better services to consumers and businesses. There’s a lot of rich history behind ACH transfers and what makes them one of the most preferred payment methods. 

ACH is a financial tool that millions of users rely on and only a few of them understand the payment method. ACH payment network supports tens of billions of transactions within the US every year and many consumers know ACH payments by other names. Several businesses still don’t know how to boost consumer adoption of ACH payments and how to make sure all involved leverage the benefits of ACH transfer. 

While the ACH payment network is a widely known and used method, millions of customers don’t know how to set up ACH payments, or how to make an ACH payment.

What is ACH Payment? Brief History

ACH (Automated Clearing House) is a network for electronically moving money between bank accounts throughout the USA. ACH is the electronic evolution of the paper check and with time and technological improvement, it became a digital process. The digital process was adopted to improve efficiency and reduce the need for human input. 

As consumer needs and preferences changed in the early 1970s, banks in the US had to find new ways to keep up. The astounding growth in volume and geographic spread of checks required banks to devise new methods of handling and sharing information. The best solution that banks could think of was to turn to newly commercialized computer technology to build a payment network. Then this newly formed payment network was named “Clearing House”. If you don’t know about clearing house, it was a place where banks went at specific times to exchange checks and settle transactions.

Clearing Houses came into existence to help banks to settle checks between each other with relative ease. They facilitated the exchange of checks and calculated the net settlement amount per bank. The use of Clearing Houses makes the use of checks an open-loop payment system. Open Loop payment systems leverage intermediaries (banks, credit card providers, etc) to facilitate payments between two entities (individual accounts). 

Till the end of the 1950s, magnetic ink character recognition (MICR) became a standard practice. This technology utilizes a check number, account number, and bank routing number at the bottom of a check. Ach became a natural extension of MICR technology, it was created as a way to exchange MICR directly and not extracting MICR data from checks. 

ACH transactions in the beginning included:

  • High-volume
  • Low-risk
  • Repetitive

With time, ACH payments became a norm around the entire US financial industry, becoming so standard that it’s not connected to every US demand deposit account. The popularity of ACH transactions is understandable as ACH was designed to be a low-cost service, providing banks with a profitable alternative to processing and storing paper checks. 

The ACH Payments system was designed to allow corporations and consumers to reduce the use of paper-based checks and use digital methods to make payments. Users can use ACH transfers to process huge volumes of payments electronically, and with time it has become the biggest payment system in the country. In 2000, the ACH payment network processed over 4.8 billion payments, their value totaling over $12 trillion in the same period. To date, most of the payments transferred over the ACH include recurring credit card payments, interests and dividends, and other programs endorsed by the US Government. 

However, the ACH payment method isn’t perfect. Compared to swift and seamless payment methods offered by FinTechs of today. Regardless of the slow processing, it is still used to process billions of payments every month.

How does ACH work?

In both Push and Pull transactions, ACH works in a similar way:

1. A bank originates the transaction. This bank is denoted with the term “ODFI” Originating Depository Financial Institution. Banks then send ACH entries in batches, working on a fixed schedule. 

2. An ACH operator (The Federal Reserve or The Clearing House) puts the entries into deposits and payments. 

3. Once the entries sent by banks are sorted, the ACH operator sends legit entries to RFDI (Receiving Depository Financial Institution).

4. RDFI receives the transactions and debits or credits the amount according to the payment. 

5. Money is settled among banks at the end of the day. 

Since 2001, ACH payments have been available for customers online. In 2015, NACHA (the organization regulating the ACH network) created single-day ACH transactions. Before that, ACH transactions used to take 2 days – to 1 week depending on the banks. While single-day ACH transactions have improved the transactions by a lot, they don’t offer real-time payments. 

What is NACHA?

Commercial ACH payments rely on a set of rules and regulations set forth by the National Automated Clearing House Association (NACHA). While the Treasury payments are governed by Federal regulations that are built upon the NACHA regulations. 

NACHA’s membership is composed of representatives of the 40 regional ACH Associations in the USA. All the institutions in the ACH associations have to be depository institutions, commercial banks, savings banks, savings and loan associations, U.S. branches of foreign banks, Edge Act corporations, and credit unions. Today, over 25,000 depository institutions are participating in the ACH system.

Role of Federal Reserve and Private Sector AC Operators

The Federal Reserve Banks have been authorized by the regional ACH associations to operate automated clearinghouse facilities to settle for items they process. The Federal Reserve handles almost 75% of all the items in the ACH payment network in the United States. 

Some ACH businesses have designated private sector operators to process the item exchanges between their members.

Social Security Tests Direct Deposit

The Social Security Administration began testing DD (Direct Deposits) in 1975. While that was just an initial choice, no one expected that 99% of SSA payments will use Direct Deposits. 

While government payments gave ACH a big starting boost, the uses of ACH payments have grown over the years. Ever write a check and wonder why you never saw it getting canceled? All thanks to the ACH payment network, your check was converted electronically. The ACH payment method was considered innovative at the time, and it definitely transformed the financial industry. Due to ACH, no one gets back a canceled check, regardless of how the check was processed.

Uses of ACH Payment Network?

An ACH transaction informs member institutions (Financial institutions) to debit/credit accounts as they’re present on a physical check. Common information around check include:

  • Account number
  • Routing number

It’s also why businesses ask for a canceled check for setting up the payroll for a newly hired employee. Voided/canceled checks provide banks with necessary information. 

What makes the ACH payment process confusing is that they’re also called by several other names. ACH transfers are commonly called “eChecks”, “direct debit”, “automatic withdrawal”, “ACH credit & debit”, and others. While their names may be different, they’re all the same process. Here’s everything you can do with an ACH payment process:

  • Consumers can send funds between banks 
  • Employers can use ACH transfers to pay their employees
  • Customers pay service providers such as Internet providers, utility bills, and so on. 
  • Taxpayers pay taxes using IRS
  • Businesses pay suppliers

The ACH payment method isn’t the only method to move money around, and it may not be the most efficient process, but it’s still the biggest process. In 2020, over $62 trillion worth of payments were facilitated via the ACH payment network.

Types of ACH Payments

All ACH transactions fall into one of the two categories debit (pull) or credit (push). In the ACH payment debit process, an organization could be “pulling” money from a customer account for an automatic bill payment. In an ACH credit transaction, an organization could be “pushing” money to your employees “pushing” money to an employee’s account to pay wages. 

As one person’s credit is another person’s debit, the naming helps a business identity which process to set in an ACH transfer. An employer usually asks the ACH network to push money out of their accounts to send money to an employee’s accounts. If the employee has initiated the request, it would be an ACH debit transaction even though it will be the one who received the funds.

Who Runs the ACH Network?

NACHA, which stands for National Automated Clearing House Association, is the primary rule-making entity for ACH-using financial institutions in America. However, the complete ACH Network is an amalgamation of two systems run by different operators:

  • The Electronic Payment Network (EPN), is run by the “Clearing House” (an association made up of 24 banks)
  • FedACH, is run by the Federal Reserve banks to handle ACH transactions on behalf of the federal government. 

To understand this better, you can think of it as a partnership between two delivery companies that had their own zones and routes. Government financial institutions are serviced by FedACH, and private banks are supported by EPN. 

So NACHA, working with several government entities, makes up the rules, and then both the operators work together to route and deliver all ACH messages accordingly.

How Long Does an ACH Payment Take to Process?

As we mentioned above, ACH transfers are the most used method of sending and receiving money in the USA. But the time taken for finishing the payments vary, it can take anything from a few hours to a few business days. The time is based on:

  • When the day the transaction was initiated
  • Whether the transaction returns an error message before the target settlement date because of incorrect information or insufficient funds.
  • Whether the payment originator paid for the “same-day ACH Payment” service. 

Now that ACH messages are being delivered up to 5 times per business day, the default results are a bit faster. And the ACH payment network can easily accommodate same-day payment processing. The use of same-day ACH payments has been pretty low compared to general payments, which is the opposite of what everyone expected. In 2020, only $460 billion worth of payments were same-day transactions. That’s roughly 0.7% of all ACH transfers.

This slow adoption of same-day ACH payment can be credited to the additional cost, and also the fact that faster processing doesn’t mean faster payment settlement. Unlike a wire transfer, ACH transactions are recallable but the timelines regarding the payment returns are extremely complicated. So, if you didn’t get any notification, you can assume that the payment process is going just fine. Consumers have up to 60 days from when the statement containing the unauthorized transaction was transmitted to consumers. 

Depending on a given institution’s standard payment practices, and their risk level assessment, the payment process may be delayed until the maximum deadline. It doesn’t matter if the receiving institutions already have the details in hand.

ACH Payment vs Wire Transfer

ACH transfers and wire transfers both help in moving funds from one bank account to another one. They’re almost identical at first glance, but once you dive in deeper there are several differences. If you’re researching ACH payment vs wire transfer, then understanding the difference can help you out a lot.

During ACH transfers, information such as account numbers and routing numbers are sent in a batch to the automated clearinghouse, which then clears the payments and sends them to the bank. The ACH payment network acts as a middleman when it comes to payment clearing. 

Wire transfer on the other hand transfers funds from one account to another, but instead of the ACH, banks act as a middleman.

1. Speed Comparison: ACH Payment vs Wire Transfer

Depending on different details, an ACH transfer can take two to three business days to complete. They take more time because several payments are processed by the banks at the same time. 

Wire transfers send funds almost instantly. The funds aren’t left on hold and the receiving entity can access the funds right away. 

2. Cost: ACH Payment vs Wire Transfer

Some ACH payment providers have a fixed flat fee ranging from $0.20 to $1.50 per transaction. Businesses may also have to pay a separate fee ranging from $5 – $30 per month just for using the ACH service. There are some other charges such as ($2 – $5 per return), reversal/chargeback fees ($5 – $25 per incident), and batch fees of less than $1.00.

The good news is that ACH fees are still lower than other payment methods. Typically, ACH transactions often cost a business under one dollar per transaction based on transaction volume and potential risks. This is what makes ACH transactions an attractive choice for most users. Plus, the more ACH transactions you do, the less you have to pay per transaction. 

Wire transfer, on the other hand, can cost both the sender and the receiver. Many financial institutions charge $10 to $35 to send, and smaller institutions may also charge a fee to receive a wire transfer. For high-end payments, these costs can add up to $55 when combining all the fees, and sending money internationally can cost even more. 

3. Payment Security: ACH Payment vs Wire Transfer

Businesses and individuals need to send and receive money securely. ACH transfers are safer for the senders. Unlike most wire transfers, funds can be reversed if any fraud or payment error is detected. 

Wire transfers have a few disadvantages for the recipient. They’re a full step above cashier’s checks, which are pretty easy to fake. When you receive a wire transfer, you can access and use the money instantly. 

For senders, there’s a lot more risk involved. It’s important to know or confirm the person or account you’re sending money to, if you make a mistake and send money to the wrong party, they can withdraw those funds. Wire transfers are only insecure if you make a mistake in the sender’s information, or if someone has scammed you into sending money.

Benefits of ACH Transactions

The reason why the ACH payment method is so famous in the USA is that it offers 3 main benefits:

1. Cost-Effective

For an organization that uses ACH payments, ACH payment fees can range from a few cents to a few dollars, based on transaction size and volume. Compared to domestic wire transfers, ACH payments cost almost next to nothing. 

2. Easily Repeatable Payments

ACH payments are repeatable. Credit cards and debit cards expire or get stolen. On average the US checking account is 14 years old, so you need to link your account just once to the ACH payment network. This makes ACH a great solution that reduces the transaction risk with each wire transfer involving the same accounts. 

3. They’re Convenient

Older methods of sending and receiving money aren’t ideal and they offer a poor customer experience. Handling paper checks can be labor-intensive for everyone, wire fees aren’t ideal for the receiver, and credit cards require a lot of data inputs. And we can all agree that cash is a security risk that also requires trips to banks and standing in queues. ACH transfers are convenient and reduce the level of risk and hassle for users.

Limitations of ACH Payments

ACH payment network isn’t perfect, and here are the limitations of using ACH payments:

1. Speed

Default ACH transfers can take multiple business days to process, and even same-day ACH isn’t exactly same-day. This can leave parties with difficult decisions regarding withdrawals, shipping products, or honoring service contracts during the interviewing time. With slow processing, you can also have confusing balances, where consumers can forget about pending debit and end up with overdrafts and end up paying other charges.

2. Risk

As receiving entities won’t know for hours or days after a transaction has cleared, scammers and fraudsters can take advantage of this delay. This particular risk has eliminated ACH’s adoption for single-transaction uses and has also forced banks to place limits on how much money consumers can transfer.

How to Set Up ACH Payment?

Here’s how to set up ACH payment for your money transfer needs:

1. Set Up Your Account

Regardless of the industry, you’re in, ACH payments can increase revenue. ACH payments come with lower transaction fees compared to wire. Before you can set up an ACH payment account, you’ll need to choose a payment processor which is the next step.

2. Choose an ACH Payment Processor

You should contact your bank to figure out the ACH payment processing fees. It may be more efficient for you to connect with an ACH operator or payables automation solution. Comparing the details of features and the workflow from 3-4 different providers can help you choose the ideal ACH payment processor according to your needs. 

3. Finish the Paperwork

You’ll learn a lot about ACH payment processing when you fill out the necessary paperwork. ACH payments work by sending money from one account to another electronically. If you’re using wire transfer up until now, you can save a lot of money by switching to the ACH payment method. 

Visit your bank and complete the paperwork as directed by them.

4. Understand the Types of ACH Payments

To learn how to set up ACH payments, you’ll need to learn about the types of ACH payments. There are 4 basic types of ACH transactions:

  • PDD: this means there has been written permission from the payer to have funds debited from their accounts. Writing a check won’t qualify as permission when conducting a PDD transaction.
  • WEB: When the payer permits the internet to have the funds debited electronically, it’s known as a WEB ACH transfer. Specific authorization language is used in the permission process, and this language should be understood by the payer. 
  • TEL: With TEL ACH transactions, the payer provides information over the phone for money to be debited from their account. When a TEL ACH payment is processed, the phone call is recorded for verification. 
  • ARC and BOC: In ARC and BOC ACH transactions, a written check acts as permission however, the payer has to be notified that the paper check can be converted for conducting an ACH transaction.

5. Choose the Right Entry Class

Businesses have to familiarize themselves with several entry classes before processing ACH Payments. Most of the time it’s ideal to choose a service provider who will help you in processing the payment correctly. 

There are more than a dozen entry classes and you need to make sure to choose the one that suits your spending habits. 

6. Carefully Go Through ACH Payment Terms and Conditions

It’s essential that you go through the terms and conditions carefully. If you choose to sign up with an ACH payment provider, then you’ll get a detailed terms and conditions document that will help you understand almost everything. It will also detail the steps you can take to learn more and it will answer all the questions.

How to Make An ACH Payment?

Contrary to popular belief, it is pretty easy to learn how to make an ACH payment. Here are all the steps you need to follow for an ACH transfer. 

1. Gather Crucial Information for ACH Transfer

To make a transfer, you’ll need to provide your name, your routing/ABA number, account number, account type, and transaction amount. If your account has check-writing privileges, you should be able to get the account and routing number on the check. Besides bank accounts, credit unions can also be used for ACH payments.

2. Choose Between ACH Debit and ACH Credit

To execute the correct payment, you’ll need to differentiate between ACH debit and ACH credit.

ACH Credit is used to pay bills, with these transactions you provide your financial institutions with the authorization to pay a utility company or a loan provider. 

With ACH debit, you establish the transaction with the payee. In this transaction type, you’ll submit your payment details such as account and routing numbers to the payee. Compared to ACH credit, ACH debit poses a higher level of risk. 

Regardless of the type of payment you choose, you get the same level of convenience and cost-effectiveness. 

3. Finish the ACH Transfer

Before you go through the final process and transfer funds using ACH, you have to complete some paperwork. Now, most of that paperwork has gone digital and it provides a greater level of convenience. Some institutions may still ask you to fill out the physical paperwork, either way, these are the steps you need to follow:

  • Link account. This is an essential step and it can be completed fairly easily. To complete this step, you’ll need to fulfill the ACH instructions mentioned to the financial institutions who’ll be handling the transaction. 
  • Clarify if the transaction will be a credit or debit to the account where the transaction will initiate. 
  • Enter the payment amount. 
  • Specify the payment date. Most financial institutions will allow you to post-date a payment. 

Final Take: Understand ACH Payment

If you’re looking for a solution to move funds from one bank account to another one electronically, then the Automated Clearing House is an ideal option. This is also the case if you’re on a tight budget and want to keep costs as low as possible. And with the introduction of same-day transfers, the speed, and convenience of payments have been improved.

ach payment

Secure Online Payment Processing Practices: Protecting Customers and Businesses from Risk

Fraudsters are always looking to exploit the weak points in a system, be it ordinary banking activities or online payment. Shoppers can’t just stop making online payments due to the fear of being exposed. Customers deserve a smooth, friction-free, and secure payment experience and it’s the responsibility of a business to make that environment.

To protect customers and the business from fraudsters, merchants need to understand the best parameters and best secure online payment processing practices. By employing the best practices for secure online payment processing, businesses can ensure that every payment goes through seamlessly, be it credit cards, debit cards, or digital wallets.

Three Factors for a Secure Online Payment Processing

There are several factors that payment merchants should keep in mind while trying to build a secure online payment environment. The payment method should provide a smooth and simple experience for all types of payment methods, including credit and debit cards and digital wallets. Here are the three factors to consider to reduce payment risk:

  • Fraud
  • Security
  • Compliance

1. Fraud

How well a business manages fraud will determine its success. Fraud management is the key to businesses and may require changes to the payment methods and additional buyer identification verification. A high level of fraud can result in credit card companies stopping a merchant’s right to process payments, and it can lead to reputation loss for a business.

2. Security

As fraudsters try to find and exploit the weaknesses of a payment processor, it is up to the merchants to find all possible vulnerabilities and fix them. This will help in building a secure online payment processing environment. 

3. Compliance

Merchants need to follow the regulatory rules and regulations dictated by regulatory entities, as per their geographical location. These rules and regulations are built to protect customers and businesses from all fraudulent activities. Payment merchants need to have a clear understanding of the regulations that they’re obligated to follow to ensure secure payment processing for customers and businesses.

Best Practices for Secure Online Payment Processing

1. Matching IP Address and Billing Address

Checking the details available during a transaction can help in uncovering fraud in real-time. This can help businesses save huge sums in terms of both money and resources. Payment merchants can use the latest technologies that help in verifying the IP address of the buyer with the billing address mentioned on the credit card to verify if the credit card holder is a genuine buyer. 

2. Encrypt Information

SSL (Secure Sockets Layer) and TLS (Transport Layer Security) are standard practices that can be used to encrypt data when browsing the internet. Securing transactions with SSL protocols ensure that sensitive information is encrypted and can be accessed by the authorized recipient. 

3. Use Payment Tokenization

To build a secure online payment processing environment, merchants can use credit card tokenization. Credit card tokenization can de-identify sensitive information by converting it to a series of randomly generated numbers known as “tokens”. As a token, information can be sent and received through the internet and payment networks without sharing information that can lead to a customer being exposed.

4. Make Strong Passwords Mandatory

Fraudsters gain access to millions of accounts annually just by guessing commonly used passwords, such as names, birth dates, and common words. Merchants and eCommerce businesses can protect customers by requiring them to use stronger passwords. In case a customer forgets their complicated and secure password, they can reset it by using the “forget password” option. 

5. Leverage 3D Secure

One of the easiest ways fraudsters gain access to a consumer’s accounts is by guessing the passwords. 3D secure is a method of customer authentication designed to prevent unauthorized use of credit cards and protect eCommerce merchants from losing money in a fraudulent transaction. 

Payment merchants, credit card networks, and financial services institutions share necessary information among themselves to authenticate transactions. All merchants are required to comply with the latest regulations by the EU for better online customer verification and 3D security is one of the best ways to achieve this. 

6. Request CVV

The CVV (Card Verification Value) should be made mandatory across all payment networks. This CVV should be asked before every transaction for authenticating the user of the card, this can prevent “card-not-present fraud and fraudulent transactions over the phone.” Even if your credit card numbers have been exposed, asking for CVV information can help in the prevention of fraudulent transactions. 

7. Use Strong Customer Authentication

SCA can be leveraged by payment merchants and credit card companies to reduce fraudulent transactions significantly. SCA contains two or more elements to authenticate a customer. It requires something you know (a password or PIN) and something you have (a badge or smartphone), or something you are (fingerprints or voice recognition).

8. Continuous Monitoring

One of the best practices for secure online payment processing is continuous monitoring. Merchants need to use a payment gateway that automatically detects and manages fraudulent activity. With built-in fraud management, businesses can set rules, based on their situation and tolerance for risk, that limit or reject transactions that seem suspicious. 

9. Manage PCI Compliance

Merchants that process, store or share credit card data are required to be PCI compliant as per government rules. If a non-PCI compliant business suffers a data breach, they can end up paying hefty fines and penalties, plus they’ll have to deal with reputation damage.

Payment processors play a huge role in helping out merchants and maintaining compliance, but businesses should take a proactive role in understanding compliance requirements.

10. Train Employees to Detect Fraud

A business is as good as its employees. It should be the responsibility of a business to provide its employees with enough knowledge and skills to recognize suspicious activities and how to deal with them. When the team understands the secure payment process, they’re better prepared to identify fraudulent activities while they’re underway.

By using these practices for secure online payment processing, businesses can reduce the risk of fraudulent transactions while improving brand reputation and customer experience.

Secure Online Payment Processing

Protecting Your Businesses from Chargeback Fraud: Best Practices

Chargeback fraud is a common happening in the world of eCommerce. Chargebacks happen when a purchase is reversed and the consumer gets their money back from the seller because of a dispute initiated with their credit card company. Originally, chargebacks were intended to boost confidence in debit and credit card security and also provide a level of protection to consumers. Businesses should be aware of how to prevent chargeback fraud. In the current environment, a customer can dispute a purchase on their bill for the below-mentioned reasons: 

  • They don’t recognize a certain charge on their card
  • The customer never received their purchase or they were billed incorrectly
  • Customers feel that the product or service they paid for isn’t as promised
  • Their credit/debit card information was stolen and fraudulent transactions were made
  • A merchant’s return policy isn’t clear, and the customer doesn’t know how to return a product.

How do Chargebacks Work?

A chargeback happens whenever a customer contacts their credit card company to dispute a purchase on their monthly bill. When they start a dispute on a particular purchase, customers have to provide a reason as to why they feel the charge is an error and provide proof of their position. To keep the cardholders happy, most of these disputes work in the favor of the customers. This is one of the unsung rules for a chargeback.

In the end, customers end up getting their money back in terms of chargeback. Fraudsters all over the globe try to take advantage of this policy, which is known as chargeback fraud. Businesses should be aware of chargeback fraud protection rules and regulations.

Rise of Chargeback Fraud

Chargeback fraud is a huge concern for eCommerce businesses as it has been growing at an annual rate of 20%. The greatest reason for chargebacks is a fraud, including the transactions that weren’t made by the cardholder. There has also been an increase in a new type of fraud, known as “friendly fraud,” where a card may be used by a family member without the knowledge of the cardholder and the consumer doesn’t recognize the purchase at the end of month. Whenever the cardholder learns about this unrecognized charge on their card, they dispute with their card provider about the charge, without learning that the payment was genuine. Businesses should know how to prevent chargeback fraud of this kind or any other kind. 

Chargeback fraud is a growing concern for businesses and it can have huge impacts. A business can lose a significant amount of money, they also have to bear the fees associated with chargebacks. If a merchant is hit with tons of chargebacks they could permanently lose their access to process payments. That’s why businesses need to adopt chargeback fraud prevention practices.

Best Practices to Prevent Chargeback Fraud

eCommerce businesses can follow some of the chargeback fraud best practices to reduce the rate of flow. Some of the chargeback fraud best practices are:

1. Keep Up With Latest Chargeback Codes

Chargeback reason codes aren’t permanent. That’s because each card network has its series of chargeback reason codes, or different categories to indicate the reason for a customer dispute for chargeback or refund.

For proper chargeback fraud prevention, merchants need to stay up to date on all the new chargeback reason codes so they can authenticate if something suspicious is happening. If a consumer suggests that the charge was due to fraudulent activity, but a merchant has the evidence to prove otherwise, they can dispute the customer’s claim and prevent potential chargeback fraud. 

Keeping track of chargeback codes can help merchants understand the biggest reasons for customers requesting chargebacks. If there’s a particular reason for it, merchants can look for a solution to solve that problem.

2. Proper Documentation of All Card Transactions

Some chargeback fraud best practices include merchants to dispute customer claims for chargebacks with signatures and receipts. Maintaining proper and thorough records of customer transactions will help your business from chargeback fraud. 

Now that eCommerce transactions are growing widely, it makes sense for merchants to have physical documentation. In a growing digital economy, sometimes it’s not possible to keep paper-based records, in this case, merchants need to leverage record-keeping technologies. These solutions can help in keeping track of every card-based transaction, including date and time, IP Address, and other information.

3. Utilize Technologies

Customer authentication technologies such as 3D secure can provide an additional layer of security to the card acquisition process and prevent chargeback frauds for merchants. This authentication process transfers the liability to the card issuer, compared to chargebacks landing on the merchant for responsibility.

Additionally, whenever a business invests in a fraud prevention solution, it can help them in identifying chargeback fraud opportunities before they happen, by identifying high-risk transactions. Having an always-on fraud prevention technology can help in reducing the flow of chargeback frauds.

4. Well Trained Teams 

If your team has a great understanding of payment processor compliance rules, they’ll be able to detect and spot suspicious activities instantly. Training your team in transactions when a card is present and when a card isn’t present can help in uncovering fraud before it even happens, which is the best way to prevent chargeback fraud. Businesses should build secure payment processes that aim in strengthening defenses against fraudsters. Regularly training your team on changing compliance is a great way to detect and prevent fraud.

5. Respond to Customer Issues Quickly

85% of consumers initiating disputes admit that they do this because it’s convenient, making it imperative that merchants make it just as convenient for consumers to get their issues fixed as soon as possible. With “friendly fraud” rates expected to cross over $130B in damages from last year, merchants must follow preventive measures to eliminate fraud before it happens. The best way merchants can make this happen is by providing 24/7/365 customer support, allowing customers to contact the business and settle concerns as soon and as seamlessly as possible. 

Not all businesses may be able to provide this level of support. In these cases, merchants and their teams must solve customer problems as soon as possible. Businesses should also provide clear return rules and regulations on their website, along with answers to other FAQs.

Chargeback Fraud

Preventing Debit Card Fraud: Strategies, Tactics and Best Practices

Reports of debit cards, electronic funds, and ACH frauds were up by 32% in 2020 in comparison to 2019, according to reports created by the Federal Trade Commission (FTC). Most customers end up finding unauthorized charges on their account and it can be a hassle for banks to resolve debit card fraud. Fortunately for banks, financial institutions, and customers is that continuous monitoring of accounts can help in protecting your money.

Pros and Cons of Using Debit Card

No doubt that Debit Cards allow for easy cashless and contactless transactions. Using debit cards has its own advantages and disadvantages.

Pros of Using Debit Card:

  • No monthly bill. That’s probably the best advantage of using a debit card. Every time you make a transaction, the purchase amount is deducted from your current account balance. So you don’t have to worry about paying the bills every month like a credit card.
  • Good for keeping a track of your budget. The amount present in your bank is the amount you’re able to spend. Using a debit card with a limited balance can ensure that you don’t blow over your budget. 

Cons of Using Debit Card

  • Credits are safer than debit cards. Any fraudster who can access your debit card can spend all the money in your account in an instant. If you don’t notice, there’s nothing you can do after the transaction is completed. Until the problem is solved, you’ll have to stay with the loss of your money. Credit cards are different, if someone gets access to your credit card and they make fraudulent transactions, the charges will be reversed instantly.
  • An overdraft fee is often expensive. If you go over your account balance while using a credit card, then you may end up paying so much more than your initial spend. 

What is Debit Card Fraud?

As the name suggests, debit card fraud is when fraud happens when a fraudster somehow gains access to a person’s debit card. Here are some common types of debit card fraud:

  • A fraudster installs a card skimming device to a petrol pump’s card reader or a superstore’s card reader. Then they use the stolen card data to make unauthorized purchases. 
  • Someone finds old statements in your home, steals your account number, and makes unauthorized purchases of thousands of dollars. 
  • Someone can steal a person’s debit card and use the information to steal thousands of dollars. 
  • Customers often get a phishing email and entering your data can lead to fraudsters accessing your data. 
  • A data breach at a bank or financial institution can allow fraudsters to steal personal information.

Difference between Debit Card & Credit Card Fraud

The financial problems created by debit cards can be far harsher compared to credit card fraud. That’s why credit cards are considered a safer option while making a purchase. There are two primary federal laws “Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) which are built for consumer liability in the event of a debit or credit card fraud. 

In the FCBA, credit card users are only responsible for up to $50 in terms of unauthorized transactions. While the liability of debit card fraud depends on the time taken to report it. 

In ETFA regulation, if a person reports their debit card as stolen before any transaction happens. Then the customer isn’t responsible for any unauthorized transaction that happens. If you don’t report your stolen debit card, then the losses you’ll have to bear will depend on when you make the report:

  • Reported Within 2 Days: Up to $50
  • Reported 2-60 Days: Up to $500
  • Reported after 60 Days: It is possible that you may be responsible for all the money stolen

It is vital for customers to keep a tab on the activities that happen in their accounts. Constant monitoring allows both customers and businesses to keep an eye out for red flags.

Preventing Debit Card Fraud: Best Practices

When it comes to protecting yourself from debit card fraud, it is vital to stay on the defense. Constant transaction monitoring will help the customers and businesses to keep a track of all the out-of-place transactions. Here are the best practices for debit card fraud prevention:

1. Review Bank Statements/Authenticate Bank Statements

Online bank accounts often provide customers with a transaction log where customers can keep track of the purchase. Banks and financial institutions also need to authenticate the bank statements that customers present to the bank to ensure that they aren’t just trying to take advantage of the bank’s policies. DIRO bank account verification software assists in authenticating bank statements instantly. 

2. Keep a Track of Your Statement

All the physical statements that you decide to keep safe should be kept in a safe place so that no one can access the documents. 

3. Keep Track of Your Debit Cards

As millions of transactions happen every day around the world virtually, not all customers use their cards regularly. It is easy to lose your debit card on the rare occasions that you actually use them. Keep track of your cards so they don’t fall in the wrong hands. 

4. Be Wary About Where You Store Your Data

Avoid storing your debit card number or your PIN on your smartphone. Phishing emails, data hacks, and plain old theft can lead to criminals getting your information.

5. Protect Your Debit Card During Online Shopping

Make sure you don’t shop from online stores that seem fishy. There are some common precautions to take before shopping online:

  • Before entering debit card information on any website, ensure there is an “https” on the website URL. 
  • Phishing scams can cause you to provide sensitive data to fraudsters. Fraudulent emails or texts are the origins of phishing scams. 
  • Consider using a third-party service like PayPal when playing online as these services prevent the websites from accessing your information.
debit card fraud prevention

Is Real-Time Payment the future of payments?

The “Real-Time Payments (RTP)” system from the US Clearing House is expected to disrupt the financial landscape in 2021. While the latest payment system was launched in 2017, it may seem like that it can change the financial industry. As of right now, the network reaches 56% of US direct deposit accounts. So why do financial institutions think that RTP can change payments in 2021?

What Is Real-Time Payment?

There’s a lot to understand about real-time payments. Real-Time Payments or “RTP” refers to payment networks or a network that is used to make the payment. The hint is in the name, the payments happen in real-time, unlike ACH Payment processing time. These payments are initiated, cleared, and settled within seconds, thus causing the payments to be instantaneous. Real-time payment networks operate 24x7x365, this allows users to initiate the payment anytime and the payment will be cleared within seconds. For payments to happen 24×7, banks and credit unions will need to have a 24×7 backend system. 

“Open-Loop” is an important part of real-time payments, which allows the payment to go directly into the person’s bank instead of relying on a prepaid balance. Without a clear and nuanced data-rich method, it’ll be tough to reduce payment errors.

How Does Real-Time Payment Work?

Real-time payment is the first new payment system in the U.S in the last 40 years. And it enhances the payment method dramatically, including initiating, settling, and reconciliation. All the process of payment processing happens within seconds. 

What makes real-time payment so fast is that it combines immediate fund availability, settlement finality, instant confirmation, and integrated information flows that ensure payments are made within seconds. This is the simple way of how does real-time payment works?

What’s Special about RTP?

The RTP is the only payment system in the US that offers instant and cheap money transfers. In short, currently, businesses operating under the financial industry have to choose between speed and cost in providing payments. Fast payments are possible with credit/debit cards or wire transfers but customers have to pay the huge fee by choosing those options. Cheaper methods like ACH transactions and paper checks are slow and inefficient. 

RTP is a payment system that allows businesses to separate themselves from the current catch-22. The fee for RTP is pretty low, at $0.045 per transfer, and transactions are completed in seconds 24/7. This is significantly faster than credit card payments or wire transfers at a fraction of the cost for financial institutions. 

What’s even more important is that RTP comes with an increased level of security, thus improving the fraud prevention techniques. Merchants also get the benefit of guaranteed payments without worrying about chargebacks.

The Real-Time payment systems support all types of transactions (P2P, B2B, B2C, C2B), consumers, businesses, governments, and all other entities can use RTP. Finally, RTP offers better communication during transactions, which means real-time messaging between the receiver and sender, which can be helpful in reducing fraud in the internet age.

Why is RTP Not Widely Used?

So, even after these features why is RTP not the standard practice in the industry? While there are complex reasons for this, there are two major factors. 

Firstly, it’s the lack of incentives. Up until 2020, there weren’t many incentives to use alternative payment methods to paper checks and cash. However, the pandemic has increased the demand for new contactless payment methods. The most popular methods currently are debit and credit cards, however, after months of continuous use, financial institutions have understood that card fees aren’t worth the convenience. Because of this, financial institutions will focus more on trying out new payment methods like RTP.

Secondly, it is difficult to integrate. While businesses can integrate payments directly into their systems, they need to integrate with each bank individually. As the US has more than 4,000 banks, RTP integration is almost impossible for small to medium-sized banks. For RTP to become standard in the industry, there needs to be a simpler and more unified solution. Thoroughly understanding real-time payments is the way to make the payment system standard.

real-time payment

5 Strategies Businesses Can Use to Prevent Digital Payments Fraud

Digital payments have grown at an exponential rate since the pandemic changed the banking industry into digital-first. To prevent and detect digital payments frauds, today’s finance and regulatory teams can use a series of tools and technologies. Combining these strategies with techniques like IP whitelisting, VPNs, corporate firewalls and antivirus solutions can allow businesses to build strong digital payment frauds prevention techniques. Here are all the best practices to follow to prevent digital payments fraud.

Physical Payments Fraud: A Gateway to Digital Payments Fraud

Preventing payments fraud is a major priority for financial institutions, and the level of sophistication that fraudsters use makes it almost impossible for financial institutions to uncover and prevent fraud. 

Most of the time, it’s a ransomware-style takeover of a company’s payment systems or the subversive use of credentials to extract funds. The modern era of corporate fraud is being done using digital channels only. 

Digital payment frauds are especially worrisome for banks because the level of sophistication is greater than check fraud or small level cash fraud, and these digital-first frauds are causing more loss than other types of fraud. A study conducted in 2016 stated that the average loss a financial institution faces during check fraud was only $1,500 compared to almost $130,000 and $1-10 million for account takeover fraud. 

The fact that digital payments fraud tends to offer a better payout for criminals, however, there are other factors behind the shift to digital payments fraud. 

For instance, as B2B digital payments have become mainstream, the shift to electronic payment solutions has made it possible for tech-savvy criminals to target companies. Not all customers use physical cash and checks so conducting fraud using these is no longer profitable for businesses. 

Now that the customers are using ACH, wire transfers and cards, and even cryptocurrencies, fraudsters love to conduct fraud digitally. The widespread use of mobile payments apps and online banking software are all working in the favor of a criminal. 

Even with today’s heightened sophistication and the rising prominence of remote work, most of the losses suffered by financial institutions are due to gaps in their own compliance or security gaps. Also, the lack of proper employee training of the company’s digital security solutions can also lead to an increased level of fraud. This is why banks and financial institutions need to figure out a way to protect digital payments fraud.

Preventing payments fraud is a major priority for financial institutions, and the level of sophistication that fraudsters use makes it almost impossible for financial institutions to uncover and prevent fraud. 

Most of the time, it’s a ransomware-style takeover of a company’s payment systems or the subversive use of credentials to extract funds. The modern era of corporate fraud is being done using digital channels only. 

Digital payment frauds are especially worrisome for banks because the level of sophistication is greater than check fraud or small level cash fraud, and these digital-first frauds are causing more loss than other types of fraud. A study conducted in 2016 stated that the average loss a financial institution faces during check fraud was only $1,500 compared to almost $130,000 and $1-10 million for account takeover fraud. 

The fact that digital payments fraud tends to offer a better payout for criminals, however, there are other factors behind the shift to digital payments fraud. 

For instance, as B2B digital payments have become mainstream, the shift to electronic payment solutions has made it possible for tech-savvy criminals to target companies. Not all customers use physical cash and checks so conducting fraud using these is no longer profitable for businesses. 

Now that the customers are using ACH, wire transfers and cards, and even cryptocurrencies, fraudsters love to conduct fraud digitally. The widespread use of mobile payments apps and online banking software are all working in the favor of a criminal. 

Even with today’s heightened sophistication and the rising prominence of remote work, most of the losses suffered by financial institutions are due to gaps in their own compliance or security gaps. Also, the lack of proper employee training of the company’s digital security solutions can also lead to an increased level of fraud. This is why banks and financial institutions need to figure out a way to protect digital payments fraud.

Structured and Multi-level Approach to Digital Payments Frauds Prevention

Thankfully, just as criminals introduced new frauds, cybersecurity firms and global payments are working around the clock to develop safer and more robust solutions. Today, most financial institutions utilize a wide variety of tools right alongside each other to ensure complete security.

Solutions like IP Whitelisting and multifactor authentication, VPNs, standard firewalls, and antivirus solutions may be essential for digital security. 

Given the fact that most digital payments are extremely complex, there is no single layer of security that can block every fraudulent attack. To completely prevent digital payments fraud, financial institutions must use a structured and multilayered approach. By implementing multiple layers of security, financial institutions can find the ideal balance. 

So, ultimately what are the most advanced tools and techniques that can help in preventing digital payments fraud in 2021?

Five Major Ways to Protect Against Digital Payments Fraud

1. Regular & Intensive Employee Training

One of the best ways for digital payment frauds prevention is by training your employees. Fraudsters have evolved with time and they utilize the best solutions to stay out of the regulatory body’s eyesight. 

Digital solutions work well only if the employees are operating at 100% efficiency. For instance, if an employee forgets to utilize multi-factor authentication on customer accounts or forgets to delete an old employee’s credentials from the payments system, companies can be exposed to a certain level of risk. If a number of employees are negligent in following company policies, the threat of loss is huge.

Companies have to develop strong internal strategies to ensure that the employees are regularly and constantly educated about the policies and strategies. This education has to cover all the information about growing fraud trends and best practices used to prevent these types of fraud. Teaching customers about the practices in use to detect and prevent these frauds can be extremely helpful.

2. Multi-Factor Authentication

Multi-factor authentication is one of the most secure methods of preventing digital fraud as it is incredibly fast and effective in preventing a fraudulent takeover of customer credentials. 

Criminals can’t utilize stolen credentials as multi-factor authentication requires authorization for making any kind of payment. This could include something that a user knows (passwords), something a user has (a security token), or something a user is (biometrics authentication). In practice, this means that instead of only earning a username and password, employees may be required to submit a fingerprint scan or enter a string of code that is sent to customers via text whenever they try to transact. 

MFA is a tool that is used majorly in the financial industry. To prevent digital payments fraud, MFA is essential. 

3. Multi-User Payments Control

Financial institutions shouldn’t allow a fraudster or a rogue employee to exploit the user credentials to access a payment solution. There are a series of preventive measures that can be used to stop them from deploying funds. To prevent that from happening, dual controls are necessary. 

Dual-controls have been used by financial institutions for ages, and it ensures that the authority to execute a transaction between employees is cut in half. This prevents a single rogue employee from acting on their own. By ensuring that 2-3 employees are required to review every single payment before it’s executed is the best way to prevent fraud

Financial institutions can assign specific users to initiate and review and approve the truncations that happen in their internal payments systems. Banks and financial institutions can prevent any single employee from having authority over the payments process. 

4. Customer Authentication Software

Another method of preventing fraud is by using transaction monitoring solutions. User auditing software has become a vital part of many financial institutions as it can keep a complete log of every single action. This way, administrators, auditors, and compliance teams have complete transparency into evaluating potential fraudulent actions that happen on any specific user account. 

In situations where fraud has happened, administrators are alerted of the suspicious activities and these activity logs can help in training employees for future situations of fraud. Online document verification software helps in ensuring that fraudsters don’t access the financial institution’s internal systems. By proactively preventing customers from entering the systems, fraud can be prevented even further.  

5. Payment Safelists and Blocklists

Another way to prevent digital payment frauds is by implementing a safelist and blocklist. These controls can be configured directly within various internal platforms that offer them, and they work by placing internal parameters over which internal bank accounts can be used to send payments. 

Payment safelists and blocklists are incredibly helpful as they give companies total control over individuals and entities that are allowed to engage with the business. Thus helping in digital payment frauds prevention.

digital payment frauds