Online Payment Fraud Detection Methods

Online commerce has taken over traditional shopping as people find it more comfortable and comprehensive. But with the ease of use, online shopping also brings a downside, namely fraud, which happens at a higher rate when it comes to online payments. When receiving a payment, merchants are prone to becoming victims of fraudsters who take advantage of distance payment and try to perform a scam. Customers can also be tricked into making payments that aren’t secured if the merchant isn’t reliable or doesn’t provide a solid payment fraud detection system. To prevent fraud from happening, some aspects must not be overlooked to ensure safe transactions for both sides. Here are some of the best methods to detect, control, and avoid fraudulent payments. 

Types of Frauds and Effective Payment Fraud Detection Actions

As you probably guessed, payment fraud is when someone uses stolen or false information to make a payment they are not authorized to make. With online payments, spotting fraud is more challenging, considering that the merchant and the customer are never face to face. Online fraud is more prevalent as payment information can be obtained illegally through various ingenious methods that hackers constantly improve. Thankfully, payment fraud detection methods are also evolving, trying to keep up with all the ways through which fraudsters can steal credit card information. To ensure you stay safe from potential fraud attempts, keep reading to learn more about how your data can be stolen and used without your knowledge. 


The most common and the most potent method, phishing, is an attack that involves collecting data from people by manipulating them to disclose personal information. To be more precise, attackers send an email, a message, or a link to a website where people are asked to fill in their personal information, log-in credentials, and credit card info. To ensure the source is credible, they send messages on behalf of trusted companies, but the content includes a link to a fake website that is not secure. 

To avoid being tricked through phishing, educate yourself and stay away from suspicious emails or messages that redirect you to websites that are not trustworthy. Ensure you are protected by an antivirus that can spot spam messages and keep you away. 


This method refers to a device called a skimmer, which is installed on ATMs to collect personal data on credit cards. Fraudsters place the skimmers on the reading port of payment terminals as well, thus increasing their chances of stealing credit card details whenever someone is making a payment, not only when withdrawing money from the bank. Some thieves also place skimmers over the cameras supervising ATMs to visualize PIN codes. 

The skimmer is very small and almost impossible to detect, so it’s tough to tell when you are on the verge of becoming a victim of skimming. You can thoroughly analyze the reading terminal to see if it has been tampered with. Also, cover the keypad with your hand when entering your PIN code to stay safe from camera-installed skimmers. 

Friendly Fraud

Also known as chargeback, this type of payment fraud is when a customer requests a refund for a product they no longer want or ordered by accident. Sometimes, the client receives the refund and keeps the product, costing the company double the amount. Fraudulent clients might also use a stolen credit card to make a purchase, only to claim the transaction unauthorized later on. 

It’s very hard for businesses to stay safe from this method, as they need to find out which refund is legitimate and which isn’t. The best payment fraud detection method in these cases is to identify the customer and ensure they are the rightful owners of the credit card. Also, using the location, a merchant can determine if a transaction is suspicious and can further require authentication data from the client. 

Business Email Compromise

This method targets employees of various companies, who receive a deceiving email in which they are requested to transfer money to fraudulent bank accounts. Hackers either impersonate high-grade managers or a powerful vendor from their list of clients, using a familiar email address often containing the company’s name. They demand employees to follow instructions to send money for various services, promotions, or winnings. 

It’s also a method that takes a lot of work to spot. The primary protection measure is always to check the origin of the emails received and the authenticity of the links to which the money will be transferred. Also, companies should invest in high-level payment fraud detection software that will ban suspicious emails or websites. 

How Can AI Help in Online Payment Fraud Detection

Artificial intelligence and machine learning are widely used to avoid online fraudulent transactions. Using customers’ history and various markers, AI can easily detect possible fraud attempts and prevent them from happening. 

The advantages of using AI as a tool for payment fraud detection are uncontestable, considering the speed in showing results, its accuracy, and the reliability of the data provided. Compared to humans, artificial intelligence can analyze many algorithms and parameters in a matter of seconds. It’s also more challenging to outcome by fraudsters as it can quickly adapt to changing patterns and rapidly learn from new data. 

Beforehand, you need to know that AI can detect anomalies by analyzing data that create a pattern. For example, if you live in a particular country and a payment is being processed from another country, AI can assume it is a fraud attempt based on your usual location. This way, it can prevent the transaction, thus saving you a useless expense. Other algorithms are also analyzed, such as shopping history, regular payments, interest in specific items, etc. Hence, it can determine on its own whether or not it is you who is making the payment by simply consulting your habits. 

Through a technique called “natural language processing,” AI can analyze and create human language to deceive fraudsters. It can analyze reviews, emails, and phone calls to detect fraud. Online transactions can be monitored through NLP to analyze semantics and meaning so that potential attackers won’t be able to scam merchants. 

Another way artificial intelligence can aid in detecting online fraud is called biometric authentication. It analyzes biometric data, such as fingerprints, voice, or face, to determine the customer’s identity. It goes as far as analyzing keystrokes used to fill in authentication data when logging into a website. This allows it to spot fraudsters trying to hack accounts or make unauthorized payments.