Preventing transaction fraud with enterprise fraud management solutions

Transaction fraud is on the rise as digital commerce continues to grow. In 2023, e-commerce losses to online payment fraud were estimated to reach $48 billion globally — up from $41 billion in 2022 and just $20 billion in 2021.¹ Different types of payments fraud, such as credit card fraud and chargeback fraud, can pose serious harm to an organization’s finances and reputation.

Does transaction fraud prevention need an update?

Businesses have been relying on legacy fraud prevention methods and tools for decades. Many may still be using transaction rules and lists to identify suspicious payments, or even manually monitoring and flagging payments for risk of fraud. While these remain important strategies, fraud is evolving, and fraud prevention must evolve with it.

To help your business adapt to the changing landscape and update its transaction fraud prevention strategies, consider these best practices:

• Track fraud KPIs. Assess potential security risks and patterns of fraud by continuously monitoring fraud KPIs such as fraud rate, dispute rate, decline rate, and authorization rate

• Offer real-time order tracking. Allow customers to track their orders and shipments in real time to help prevent fraudsters from intercepting or rerouting packages

• Provide transparent messaging. At checkout, clearly communicate how your business processes payments, authorizes customer data, and helps shoppers manage their payment information and purchases

Fraud prevention strategies in the age of agility

It’s difficult to strike the right balance between creating a secure payment process and preventing failed legitimate transactions or false declines. After all, the more ironclad your screening process is, the more you risk blocking authentic payments and frustrating customers. Businesses need to find innovative ways to bolster their fraud prevention strategies while still streamlining their customer experiences to optimize revenue.

According to the true cost of online fraud, a recent study conducted by the Ponemon Institute and sponsored by PayPal, only about half of businesses surveyed said their organizations were highly effective at reducing online fraud when accepting payments at checkout. Only 47% said they were highly effective at investigating fraud.²

Legacy tools struggle to detect and prevent fraud in an evolving payments landscape, and they can also be costly and inefficient. When businesses rely on outdated methods, it can take weeks to resolve issues, bogging down the customer experience and slowing operational processes.

Today’s customers demand a frictionless and secure experience. Companies unable to deliver both will struggle to generate revenue and sustain customer loyalty.

The evolution of online transaction fraud detection and prevention

Before building new transaction fraud detection strategies, businesses need to understand how fraud is evolving and becoming more advanced.

Fraudsters are becoming more sophisticated, and businesses and customers are paying for it. Transaction fraud prevention strategies must now account for common and growing types of fraud — including friendly fraud. Also known as chargeback fraud, friendly fraud occurs when a customer completes a legitimate transaction and then falsely disputes it to get their money back.

Payments fraud detection has evolved to help businesses better prevent this type of fraud and mitigate risk. Today’s businesses might consider using advanced fraud prevention strategies such as:

• Filters, powered by machine learning: Use machine learning to better spot fraudulent transactions in real time and identify potential patterns of fraud

• Dispute automation: Reduce the time it takes to manage and resolve chargeback disputes

• Adaptive rules: Allow rules-based fraud detection to evolve according to changing customer behaviors and risks

• Fraud simulations: Run simulations to train employees on fraud response and risk mitigation tactics

• Fraud risk scoring: Assign a risk score to each transaction based on its likelihood of fraud

Leveraging machine learning for proactive transaction fraud detection

Businesses no longer need to react to risk the way a traditional rules-based system would. Instead, they can use machine learning to detect and predict fraudulent transactions in real time — and help prevent them from occurring in the first place.

This type of payments fraud detection involves:

• Leveraging historical data to train algorithms to spot instances and patterns of fraud on a large scale

• Using a wide range of factors and datasets to inform machine learning risk models for improved outcomes

• Predicting future instances of risk and transaction fraud, and identifying audience segments most likely to commit fraud

• Constant adaptation and fine-tuning of risk models to avoid algorithmic biases that can be exploited by fraudsters

Help capture more revenue with PayPal Braintree’s fraud solutions

Instead of hiring more staff to investigate transaction fraud reactively, merchants should look into technologies that mitigate risk — so they can stay one step ahead of their adversaries. This is where management solutions built on machine learning can help improve fraud and authorization rates, in combination with human supervision and a balanced rules strategy.

Intelligent risk algorithms can be applied to large datasets with multiple variables, enabling organizations to rapidly discover correlations that human eyes are more likely to miss. By leveraging machine learning to optimize fraud filters, these systems are also able to continuously adapt along with fraudsters.

The PayPal Braintree payments platform delivers user-friendly machine learning capabilities that are trained on a huge dataset. That data comes from a consumer-merchant network comprising tens of millions of active consumer and merchant accounts globally — delivering insights from both sides of the transaction.³

Reduce fraud and false declines at the same time

These advanced fraud protection technologies help e-commerce businesses strike the delicate balance between minimizing instances of fraud at checkout and reducing declines of legitimate customers — known as false declines. In turn, this can improve operational efficiency, helping businesses save resources and reduce the time needed to manage fraud.

PayPal Braintree can help retailers can minimize fraud and maximize revenue

PayPal’s AI-powered fraud prevention tools can help businesses minimize instances of transaction fraud and optimize the sales experience for customers. Below, we list some of the biggest benefits of working with PayPal Braintree.

Optimize authorization rates

Optimize authorization rates from trusted customers so you can get paid — and maximize revenue. WeSki, an online platform for booking ski trips, achieved a 5.4% increase in authorization rates after integrating PayPal Braintree.⁴

Reduce chargeback ratio

PayPal’s Fraud Protection Advanced offers dispute and chargeback automation to help businesses minimize chargebacks and prevent losses from friendly fraud. With this solution, Avelo Airlines was able to reduce its chargeback ratio by 15.5% and increase its approval rate by 3%.⁵

Learn more about how to minimize transaction fraud with chargeback solutions.

Improve operational efficiency

A comprehensive, integrated payments platform like PayPal Braintree can help improve operational efficiency in the payment ecosystem and streamline the checkout process.