Payment gateways have become crucial instruments for businesses to conclude monetary transactions online successfully. They are secure, reliable, and offer high success rates. Their primary function is to authenticate customers’ payment details when they make a purchase online.
However, with increasing digital payments and widespread adoption of payment gateways, cybercrime has also increased. Hackers can sometimes breach security and steal customer payment data that goes across during these transactions.
As an answer to this problem, modern bank payment gateways can help businesses detect fraud and terminate transactions based on this information. Let’s take a look at the common payment gateway frauds today and how they can detect and secure your business against them.
4 common types of payment gateway fraud
There are four major types of payment gateway frauds that a business may encounter:
1. Payment gateway identity theft
This is the type of fraud where a cybercriminal somehow gains access to a customer’s details on the card and other authentication data. The criminal then proceeds to order goods and services in the victim’s name without anyone knowing. The victim only finds out when the amount is debited from their bank accounts.
2. BIN attacks
The first six numbers on a card are called BIN—Bank Identification Number. In this type of fraud, the criminal generates long lists of potential numbers that accompany the BIN. They run each combination to discover an active card and use this card number to initiate unauthorised transactions in the victim’s name.
Example: Over the past few years, Axis Bank customers have reported attempted or successful fraudulent transactions with international merchants, which are suspected of being BIN attacks. However, as per the bank officials, they did not find any breach reports as the scams were undertaken with basic card details, and the debited money was recoverable.
3. Card testing
Card testing or card cracking is similar to BIN attacks. However, in this case, the criminals create long lists of card numbers and run them randomly on websites to solicit spam orders, hoping that some of those orders will be processed successfully.
4. Account Takeover Fraud (ATO)
ATO is the most dangerous type of fraud, where a criminal gains complete access to the victim’s bank account or shopping account. They then use the stored billing details to make purchases and exhaust all the resources in that account.
Some of the common ATO scenarios are:
- Subscriber Identity Module (SIM) Swap
- Malware
- Data Breaches
- Credential Stuffing and Cracking
- Social Engineering
- Phishing
- Smishing
- Vishing
Example: In 2024, a Pune-based real estate company was scammed of Rs. 40 lakhs. The cybercriminals tricked the company’s employees into making large transfers to a fraudulent bank account.
How can banking payment gateways help prevent fraud?
Payment gateways today are equipped with several security mechanisms that help prevent all the major types of fraud that commonly occur:
1. Address Verification Service (AVS)
AVS is a robust mechanism that works by verifying the address and PIN code provided by a customer against those that are saved on the card used. For a card-not-present transaction, this mechanism will request a user verification from the bank.
If the AVS match is successful, the transaction is processed.
2. Card Verification Value (CVV)
CVV is never stored on a business’s database. This number is a security measure that allows only the cardholder to be able to use the card. CVV filters cross-check the 3-4 digit value entered by the customer against those stored by the issuer. If they match, the transaction is processed. If not, it is declined.
3. Device ID
This type of mechanism works by identifying the device a customer is using to make a transaction, as opposed to the transaction instrument. It scans the internet system, connection, OS, and browser to verify user authenticity. This is possible because all devices have a unique ID that can be verified to process, decline, or flag a transaction.
4. Flagging large transactions
When criminals gain access to payment information, they usually attempt to make large transactions before the owner blocks the card. Your business can flag these large-value transactions for further verification through payment gateways or automated calls to avoid shouldering the cost of allowing fraud to happen.
5. Payer authentication
This is a security measure that allows a cardholder to securely generate a PIN for use during checkout to verify their identity for the transaction. This is a key method that helps businesses safeguard themselves against chargebacks and secure lower interchange rates.
6. High-risk countries
In this security mechanism, your business can create a list of high-risk countries from where a high volume of fraudulent transactions are recorded. The payment gateway can then be configured to flag the transactions from these countries for further verification before they are processed.
7. Risk scoring
The risk scoring mechanism works by using statistical models that are capable of recognising fraudulent transactions through using a set of rules. Whenever a transaction is initiated, the risk score would rank it on the risk of being fraudulent based on the statistical modelling results.
8. Lockout mechanisms
Using this mechanism, businesses can set gateways to reject or lock transactions from a particular IP address that uses a large number of credit card numbers within a time limit. The transactions that fail the AVS test can also be flagged and locked out.
How to choose a secure payment gateway?
Thankfully, you can select a payment gateway that is robust and capable of detecting and preventing fraud by ensuring that you look for:
- Transaction fees: Payment gateways usually charge a fee for each transaction, and you should understand the fee structure well. You want to make sure that the charge is reasonable for your transaction volumes.
- Payment methods: You want a payment gateway that supports all the popular payment methods that customers are demanding today.
- Security: Make sure that the payment gateway you are considering is PCI DSS compliant and employs robust security measures, such as tokenisation.
- Integrations: You should be able to easily integrate the payment gateway into your existing systems with minimal downtime.
- CX: The gateway should be swift, and smooth and offer high success rates in order to provide a good customer experience.
- Fraud detection: You should have built-in tools in the payment gateway that help you detect and prevent fraudulent transactions.
In summary
Today, bank payment gateways are instrumental in ensuring swift and safe transactions between a business and its customers. Equipped with fraud detection measures, payment gateways can truly transform their utility and function by empowering customers to shop online without stress or worries.
Payment gateway partners like Plural by Pine Labs empower businesses to provide not just smooth and quick transactions but also secure exchanges that remain safe from breaches. Contact us to explore Plural’s payment gateway capabilities today.
