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Nefe Emadamerho-Atori


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How to Detect and Prevent Transaction Fraud

Online transactions have become increasingly popular in recent years, mainly because of the speed and convenience they offer businesses and consumers. However, this rise in online payments has also led to a corresponding increase in transaction fraud. In 2021, 71% of businesses were victims of transaction fraud, costing businesses billions of dollars.

In this article, we'll discuss what transaction fraud is, how it works, the different types of transaction fraud, and strategies for detecting and preventing it.

What is Transaction Fraud?

Transaction fraud is the act of stealing someone else's payment information and using it to make unauthorized transactions or purchases.

Fraudsters use strategies like phishing scams, malware, identity theft, debit card fraud, and social engineering to obtain the payment information of their victims.

Once they have the information, they can make purchases or transfer money without the owner's permission.

When a fraudster makes unauthorized transactions or purchases, the actual cardholder or owner will notice the transactions and immediately raise a dispute, leading to chargeback fees and investigation fees for businesses.

This can be a significant issue for businesses, as they have to settle disputes, pay numerous penalties, and incur an overall loss of time and resources.

Types of Transaction Fraud

Transaction fraud can take many forms, and it is essential to be aware of the different types of transaction fraud so we can take proactive steps and deploy preventative measures.

Account Takeover Fraud

Account takeover is a type of transaction fraud where fraudsters gain unauthorized and illegal access to a user's bank or fintech account. Upon gaining access, the fraudster changes the account details and locks out the legitimate owner, thereby taking over the account. The fraudster proceeds to perform as many fraudulent purchases as possible before they are detected.


Phishing is when fraudsters pose as a trustworthy business entity or use phony emails and websites to obtain sensitive information such as login credentials and credit card details. Fraudsters who do this prey on their victims' ignorance and use that to trick them into sharing their payment details and account information.

Identity Theft

While identity theft is not limited to the digital space, it is a prevalent type of online fraud. It involves fraudsters using hacks, malware, and other criminal means to steal someone's personal information and use that data to perform fraudulent transactions.

Chargeback Fraud

Chargeback fraud, also called friendly fraud or credit card dispute fraud, is the type of transaction fraud that is carried out by the cardholder. In this case, the customer makes a legitimate purchase with their card but goes on to dispute the transaction with their card issuer and asks for a refund. They claim that the purchase was unauthorized, their card details were stolen, or they didn't receive the product or service they paid for.

Chargeback fraud has significant negative impacts on businesses. When a chargeback is filed, the business has to make a refund and bear the costs of any associated processing fees and potential penalties.

Card Payment Fraud

This is also called debit card fraud. It occurs when a fraudster uses dubious means to obtain someone's PIN and card information and makes purchases without the permission or knowledge of the card owner.

How To Detect and Prevent Transaction Fraud

Detecting transaction fraud is crucial for ensuring the security of financial transactions. Here are some common methods for detecting and preventing digital payment fraud.

Multi-factor Authentication

Multi-factor authentication (MFA) requires users to provide multiple pieces of evidence to prove their identity, like a password and an OTP code sent to their phone or email. The extra layers of security that MFA provides makes it harder for fraudsters to perform fraudulent transactions with the account details of genuine users.

Customer Education

Fraudsters exploit people's ignorance to trick them into giving out their payment and account details. Businesses can combat this by educating customers about the dangers of transaction fraud and the best practices for preventing it and protecting their sensitive data.

Behavior Analysis and Anomaly Detection

Businesses can use machine learning algorithms to analyze user behavior, like typing speed and mouse movements, to detect patterns that may indicate potential fraudulent activities. For example, if a customer suddenly displays significantly different behavior during a transaction, it may be a case of fraud.

Anomaly detection systems look for sudden and unusual deviations in customer behavior and send out alerts for further investigation.

Transaction Monitoring

Transaction monitoring is a process of tracking and analyzing financial transactions to identify suspicious activity. Besides detecting transaction fraud, transaction monitoring also helps detect money laundering, identity theft, and credit card fraud.

Transaction monitoring is similar to behavior analysis. However, a significant difference between them is that transaction monitoring focuses on inspecting previous and present customer transactions to detect anomalies and flag them for further investigation.

Geolocation and IP Analysis

Geolocation and IP analysis are two tools we can use to verify the location of a digital payment and prevent transaction fraud. Geolocation is the process of identifying the physical location of a device, while IP analysis involves analyzing the IP address of the device used to make the transaction.

This helps prevent fraud by identifying transactions that are made from locations not associated with the user's account or that are made from suspicious IP addresses.

Geolocation and IP analysis can also help prevent fraud by identifying transactions made from locations associated with fraudulent activity. This can help businesses flag these transactions and take appropriate action to prevent fraud.

Stop Transaction Fraud With EasyDetect

EasyDetect is the real-time transaction monitoring solution you need to seamlessly detect and prevent transaction fraud. EasyDetect comes with anti-fraud features that enable you to identify and block potentially fraudulent activities before they occur. With EasyDetect, you can:

  • Set automated rules and conditions that block suspicious activity
  • Receive real-time data on transactions
  • Get insights into user behavior with the help of artificial intelligence (AI)
  • Receive real-time alerts when users carry out actions that go against the rules you set

EasyDetect helps you take a proactive approach against fraud and puts an end to the firefighter response where the damage has already been done.

Get started with EasyDetect and stay one step ahead of fraudsters. Email us at [email protected] if you have any questions, or visit our documentation or website to learn more about other fraud prevention offerings.

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