Reducing digital payments fraud during the holidays

Like retailers, fraudsters love the holidays. With the increase in transactions, they can more easily hide their heinous activities. However, this holiday season, the rise in use of chip card technology makes it harder for credit card fraud. The fraudsters, pesky thieves that they are, have moved on to digital payments fraud; [tweet_dis]card not present fraud has jumped 25% this year and projections are for an increase of 80% on top of that by 2020.[/tweet_dis]

Online retailers are in a tough spot; they’re liable for fraud charges but they also don’t want to add onerous steps that create friction for legitimate customers. So how do they reduce their digital payments fraud rate without making customers jump through too many hoops?

Sure, you can throw people at the problem, but that is expensive, time-consuming and takes merchants away from their focus. While fraud experts are necessary, technology is the first wall of defense. Technology, as it presents new avenues of attack for the fraudsters, simultaneously offers tools to combat the resulting fraud.

Let’s examine a few solutions:


Instead of keeping valuable credit card data intact, convert the data to a format that is useless outside of a specific transaction and retailer. The process of tokenization allows retailers to offload securing the card information to a service provider and they can process the transaction using the token. If they are later hacked, the hackers won’t gain access to any useful or sensitive data.

The beauty of this technique is that it is PCI (Payment Card Industry) compliant and works with existing POS systems; replacing the actual 16-digit credit card number with a 16-digit token (where only the last 4 numbers are accurate) allows processing as usual, driving down compliance costs and strengthening fraud protection.


For major retailers, end-to-end encryption is an option. As PCI standards do not allow the storing of credit card information after a transaction, converting that data via algorithm protects the data while still allowing authorized use. It’s expensive though, so not practical for small and mid-size companies.

Identity Verification

Another technique to decrease digital payment fraud is to verify the PII (Personal Identifiable Information) of the buyer. For example, a retailer can check the full name, address, and date of birth against records from credit bureaus, government, utilities, telecommunications and other reliable data sources. By checking against the records, a positive ID verification can weed out fraudsters who don’t have access to this personal information.

For further protection, analyzing additional data points from independent sources makes it even harder for a fraudster to fake a match. With a modern ID verification service, such as Trulioo, the process takes 1-3 seconds and the verification rule set is under total control of the fraud and risk analyst at the e-commerce site or online retailer.

Risk Engine

Not all transactions, or the associated risk, are the same. Merchants can tune their e-commerce platforms to adjust for differences in customers, regions, industries and specific purchases. By assessing the likelihood of fraud, merchants can create different rulesets, workflows and procedures to smooth low risk transactions and more carefully analyze high risk ones.

The first step to create a successful risk engine is by accurately onboarding new clients. Preventing fraudsters from entering the system in the first place nips a whole series of bad transactions in the bud. Identity verification is also necessary for accurate onboarding; merchants need to verify a customer’s information to accurately assess risk.

While introducing a risk engine is a complex undertaking, online merchants can start reducing payments fraud this holiday season by implementing an ID verification system now. Setup is quick, it cuts the risk of fraud and, as a part of an overall fraud protection program, will improve customer onboarding while reducing the hard costs associated with fraud.

Learn how to successfully implement identity verification and reduce digital payments fraud.