Actionable Steps to Prevent Payment Fraud

Understanding the Threat Landscape

Payment fraud remains a significant threat to businesses of all sizes. According to the 2025 AFP® Payments Fraud and Control Survey, of the 500 organizations surveyed, 79% of organizations fell victim to payment fraud attacks or attempts in 2024. While payment processors handle technical security measures, merchants must implement their own defensive strategies to create a comprehensive shield against increasingly sophisticated fraud attempts.

Actionable Fraud Prevention Steps for Merchants

1. Implement Robust Internal Controls

• Establish separation of duties: Ensure that no single employee handles all aspects of payment processing
• Create approval thresholds: Require multiple approvals for transactions above certain dollar amounts
• Document all processes: Maintain clear, written procedures for payment handling and verification
• Conduct regular audits: Review transaction records and reconciliations at least monthly

2. Train Your Staff Continuously

• Schedule regular security training: Update employees on the latest fraud techniques quarterly
• Simulate fraud attempts: Run mock phishing exercises to test staff awareness
• Create a verification culture: Encourage employees to question unusual requests without fear of reprisal
• Designate fraud specialists: Train select team members to become internal fraud prevention experts

3. Verify Changes to Payment Instructions

• Implement callback procedures: Confirm any payment instruction changes by calling the vendor using previously established contact information
• Require multi-factor verification: Never accept payment change requests via email alone
• Establish waiting periods: Institute a mandatory 24-48 hour delay before implementing payment changes
• Develop a vendor verification system: Create a secure process for validating vendor identities. Here are some common verification practices:
  • Gathering documentation:
    • Requesting and verifying business registration documents, licenses, and permits.
  • Background checks:
    • Conducting credit checks, checking for legal disputes, and investigating a vendor’s reputation.
  • Risk assessment:
    • Evaluating potential risks associated with the vendor and developing a risk profile.
  • Bank account verification:
    • Confirming the accuracy of vendor bank account information.
  • Identity verification:
    • Verifying the identity of the vendor’s representative through various methods, including government-issued ID

There are also tools, such as third-party verification platforms, KYB/KYC software, and vendor management platforms, that merchants can subscribe to help automate vendor verification.

4. Monitor Business Operations

• Watch for unusual order patterns: Be alert to sudden changes in order frequency, size, or shipping destinations
• Track customer behavior changes: Note when established customers suddenly alter their purchasing habits
• Review declined transactions: Investigate multiple declined attempts from the same customer
• Analyze rush orders: Pay special attention to expedited shipping requests, especially for high-value items

5. Secure Your Digital Environment

• Implement multi-factor authentication (MFA): Require MFA for all payment systems and customer accounts
• Regularly update all software: Ensure all systems have the latest security patches
• Use email authentication protocols: Implement DMARC, SPF, and DKIM to prevent email spoofing

6. Enhance Customer Account Security

• Require strong passwords: Enforce complex password requirements for all customer accounts
• Implement account activity notifications: Alert customers about suspicious login attempts
• Limit failed login attempts: Lock accounts after 3-5 failed login attempts
• Verify significant account changes: Confirm identity when customers update contact information

7. Develop Clear Policies for High-Risk Scenarios

• Create a fraud response plan: Document steps to take when fraud is suspected
• Establish shipping policies: Require signature confirmation for high-value orders
• Define risk thresholds: Determine which transactions require enhanced scrutiny
• Document verification procedures: Maintain records of all verification steps taken

Special Considerations for Different Business Types

E-commerce Merchants

• Implement velocity checks to flag multiple purchases in short timeframes
• Use geolocation tools to identify orders from high-risk regions
• Require additional verification for orders where shipping and billing addresses differ significantly

Service Businesses

• Verify client identity before beginning high-value projects
• Establish milestones and partial payments rather than full payment upfront
• Create detailed service agreements that include verification procedures

B2B Operations

• Develop a formal vendor onboarding process with thorough verification
• Implement purchase order matching requirements
• Establish regular communication channels with the vendor’s accounts payable departments

Payment Method-Specific Considerations

Mobile Wallet Transactions

• Verify device information and implement device fingerprinting
• Monitor location data consistency between the device and transaction information
• Develop specific verification procedures for first-time mobile wallet users

Legal and Regulatory Framework

Payment Card Industry Data Security Standard (PCI DSS)

• Maintain compliance with all applicable PCI DSS requirements
• Conduct regular self-assessments and security scans
• Consider engaging qualified security assessors for comprehensive reviews

Geographic-Specific Regulations

• Ensure compliance with GDPR for European customers
• Address CCPA requirements for California residents
• Implement appropriate data localization measures where required

Real-World Fraud Scenarios and Responses

Business Email Compromise (BEC) Example

Scenario: A Finance employee receives an email appearing to be from the CEO requesting an urgent wire transfer

Red flags: Unusual request timing, pressure tactics, slight variations in email address

Correct response: Verify through established out-of-band channels, follow escalation protocols

 

Account Takeover Example

Scenario: Multiple password reset attempts followed by unusual purchasing behavior

Red flags: Login from a new device/location, changes to shipping address, bulk purchase of high-value items

Correct response: Temporarily freeze the account, contact the customer through verified channels, and require additional verification

 

Refund Fraud Example

Scenario: Customer claims non-receipt of merchandise despite delivery confirmation

Red flags: History of similar claims, inconsistent communication, refusal of alternative solutions

Correct response: Review delivery verification, check for patterns across transactions, and implement specific verification protocols

Measuring Your Fraud Prevention Effectiveness

• Track chargeback rates month-over-month
• Monitor fraud attempt patterns and adjust strategies accordingly
• Calculate and review your fraud prevention ROI quarterly
• Benchmark your fraud rates against industry standards

 Conclusion

While payment processors like IntelliPay implement advanced safeguards like tokenization, P2PE encryption, and AVS verification, merchants must take proactive steps to protect their businesses from increasingly sophisticated fraud attempts. By implementing these actionable measures, you can significantly reduce your risk of fraud while maintaining operational efficiency and ensuring customer satisfaction.

Fraud prevention isn’t a one-time effort but an ongoing process that requires vigilance, adaptation, and commitment. Your investment in proper fraud prevention protocols and processes protects not just your bottom line but also your customer relationships and brand reputation.

 

Additional Resources:

Payment Fraud Prevention Strategy Outline

The Growing Threat of Payment Fraud: What Businesses Need to Know

PCI Merchant Resoruces