How Can Retailers Combat Payment Fraud?

Payments have gone through a transformation in the last two years. With COVID-19, customers have increasingly adopted other payments methods such as digital wallets; however, these payment options come with a variety of challenges for retailers and businesses such as fraud.

Payments have gone through a transformation in the last two years. With COVID-19, customers have increasingly adopted other payments methods such as digital wallets. However, these payment options come with a variety of challenges for retailers and businesses.

For one, many criminals are using these payment methods to commit fraud through schemes such as QR code phishing, fraudulent card not present purchases, identity theft and other means.

How can businesses keep both themselves and their customers safe? ATM Marketplace spoke with Denise Purtzer, VP of partnerships and alliances at ClearSale, to learn more about these payment trends and how businesses can combat fraud.

Q. During the pandemic, customers began turning to other payment options. Can you share some statistics on that?

A. Although China and India were early adopters of digital wallets, the U.S. and U.K. had been lagging behind. However the pandemic started to change that.

In the spring of 2020, Target alone introduced 5 million first-time online buyers in just three months time, and they reported online sales up 141% early in the pandemic which set the tone for most of ecommerce. Born out of necessity, shoppers were now buying in touchless ways, and merchants had to get creative at times to keep up. Many stores chose not to allow physical cash transactions during the pandemic, thus the use of digital wallets became even more prevalent. Worldwide, consumer adoption of contactless payment methods grew by 90% in 2020.

And according to our 2021 Global Ecommerce Consumer Behavior Report, only 40% of ecommerce shoppers have their credit card within easy reach while shopping, so accepting mobile wallets and other payment options can help to keep more customers in the checkout flow.

Q. Has that trend changed at all as states have lifted COVID-19 restrictions?

A. Consumers have learned to enjoy the convenience of new payment options and I don't see that changing. In fact, the number of unique digital wallet users is projected to exceed 4.4 billion globally by 2025 based on a recent study by Jupiter Research. This was up over 40% from the 2020 findings. The amount being spent is going to nearly double and hit $10 trillion by 2025.

Q. What are some of the challenges with alternate payment methods when it comes to fraud?

A. Since the pandemic, we also saw the emergence of virtual terminals which allows a purchase to be made by a salesperson entering (manually) the payment details. Due to this being a Card Not Present (CNP) purchase, merchants may experience more fraud if they don't have measures in place to stop it, as accountability falls onto them with CNP purchases.

QR codes have given merchants a way to offer a way to pay without having to handle dirty cash during a transaction. QR codes can also be used post sale to register products easily and keep up with customer details post sale, or market the sale of additional items. Many payment options such as PayPal have created QR codes for merchants to use without a lot of technical prowess. One challenge that comes with QR codes is that new phishing schemes have surfaced in which fraudsters convince consumers a QR code is for one thing but once scanned it contains malware or steals important personal information.

Buy Now Pay Later (BNPL) has exploded during this time as customers have felt economic crunch with loss of jobs and even been a bit more conservative with their spending due to the uncertainty of the times. When it comes to fraud liability, some, but not all BNPL vendors take chargeback risk off of the merchant's plate. Furthermore, BNPL is also driving identity theft claims. We're seeing fraudsters use stolen consumer data to open BNPL accounts and make purchases.

I discussed the rise in digital wallets earlier. Unfortunately, thieves are also making more fraudulent chargebacks and claims. All too often, the fraudster gets their money back while keeping the item, leaving the seller high and dry.

Q. How can merchants protect themselves?

A. To confront growing fraud concerns surrounding virtual terminals, ClearSale has recently integrated with some of these virtual terminal solutions such as with our partners at Bambora. This gives much more flexibility to offer a contactless payment to customers and a better experience without the risk of fraud.

It's critical to have card-not-present fraud protection in place to authenticate customers and payment methods before approving transactions To protect against QR Code schemes. If you're a merchant using QR codes at checkout, you should also:

  • Display QR codes on a tablet or other digital displays if possible instead of on a static printout that could be swapped by scammers. If you must display a static code, check it regularly to ensure it's still yours.
  • Monitor your transaction reports to ensure that you're receiving the payments that customers scan in.
  • Monitor your social media mentions to spot possible impersonators.
  • Install and maintain security software on all your devices that display or scan QR codes.

Merchants who offer BNPL should make sure their fraud program is advanced enough to look for nuanced cases of possible identity fraud, which should be flagged for manual review.

Lastly, to defend themselves against chargebacks merchants should look to implement a fraud prevention solution that offers guaranteed protection against chargebacks.

Q. What role do you see cash playing in this new economy?

A. Before the pandemic, digital upgrades were a matter of retailers' organizational priorities and budgets. The switch to contactless shopping changed all of that, and many of those changes are here to stay. Merchants that embraced alternative payment methods have seen how vital these tools are for improving the customer experience, helping to create trust, and overall more cart completions. As consumers continue to rely on these convenient ways of shopping, the need for cash is dwindling.


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