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The Executive’s Guide to Comprehensive Payments Fraud Detection

6 de outubro de 2022

Part 1: Addressing Payment Fraud

Part 2: Finding the Right Fraud Partner

Part 3: Best Practices to Prevent Fraud

Listen to this article instead:

The Galileo Financial Technologies Podcast
The Executive's Guide to Comprehensive Payments Fraud Detection

The Galileo Financial Technologies Podcast


It’s no secret: B2C and B2B ecommerce has exploded. And sneaking in alongside legitimate customers are fraudsters. Meanwhile, it’s getting increasingly complicated and expensive for banks and payment providers to mitigate payments fraud in-house.

That’s why we’ve put together this guide: to help you evaluate what’s really needed to quickly and cost-effectively detect and minimize payments fraud, protect your organization and minimize friction for good customers.

Download the Anti-Fraud Playbook.

Part 1:

Addressing the Rapidly Evolving Payments Fraud Challenge

With ecommerce accelerating, payment fraudsters have ramped up their “transactions,” too. In fact, payment card fraud transactions are forecast to rise 20% to $38.5 billion by 2027. And it’s not just individual consumers being targeted; fraudsters use payment vehicles to defraud organizations too.

  • The 2022 AFP Payments Fraud and Control Survey reports 71% of organizations were victims of payments fraud attacks or attempts in 2021.

  • Larger enterprises ($1 billion+ in annual revenue) are more susceptible to payments fraud than smaller companies.

  • 75% of larger organizations surveyed by AFP had been attacked, compared to 66% of the smaller ones.

Increasingly, fraudsters are targeting the mobile payment channel, and their tactics are getting more sophisticated. As the amount of fraud rises, so do the costs.

There are two key factors at play here:

  1. Where fraudsters are targeting

  2. How banks and other financial services providers are responding

A rise in malicious bot transactions, challenging fraud patterns and synthetic identity fraud, have made it harder for financial services providers to keep up with transactional and operational fraud. This leaves vulnerable gaps that lead to costly problems, such as customer churn, compliance headaches and lost revenue.

The cost of fraud is part of doing business, but as fraudsters continue to find new ways to exploit personally identifiable information (PII), and disrupt and intercept the flow of money, players in the payments ecosystem must constantly evolve to minimize losses, keep fraud management costs under control and maintain successful transactions for legitimate customers.

As programs scale, costs add up quickly—making it essential to have a system in place that proactively mitigates fraud threats and evolves as your sales grow.

Learn to Solve Fraud and Risk Mitigation Issues with Galileo’s Payment Risk Platform

Payments Risk Platform
Payments Risk Platform
The Real Cost of Payments Fraud

Credit card transactions can equate to tens of billions of dollars in fraudulent transactions — despite the fact that just 6 or 7 cents of every $100 are actually fraud.

Financial services firms have collectively seen the cost of fraud increase from 6.7% to 9.9% in 2021 when compared to pre-pandemic levels.

Learn how Virtual Cards Reduce Fraud while Streamlining Payments.

Card fraud on a global scale is a $28+ billion problem, and one that continues to escalate as fraudsters sell off critical payment account data (identify theft), or leverage stolen PII to commit new account fraud by creating synthetic identities.

  • Over the next decade, it is estimated that card fraud will result in $400 billion in losses globally.

  • In the past year alone, the U.S. accounted for 36% of these losses

  • By the end of the decade, it’s expected U.S. card fraud losses will total over $17 billion (about $52 per person in the U.S).

B2B Payments Fraud Is Even More Costly

B2B payments fraud is up 10% since the pandemic began, according to Mercator Advisory Group. Thanks in part to larger average order values and more manual reconciliations—a weakness fraudsters love to exploit—B2B payments can be more vulnerable than B2C transactions.

Most businesses lack the time and expertise to go head-to-head every day with fraudsters who are constantly looking for the next weakness in the system.

For B2B organizations, every dollar lost to B2B fraud results in an average of $4 in lost revenue.

Primary Types of Payments Fraud
  1. Transactional fraud: fraud that occurs during the transaction, including:

    1. Identity fraud

    2. Account takeovers

  2. Operational fraud: fraud that occurs after the transaction, such as:

    1. Fraudulent returns

    2. Friendly fraud (chargebacks)

    3. Lost or stolen merchandise

All of these types of payment fraud can be extremely costly to businesses and require a comprehensive multi-layer approach to transaction risk decisioning and operational fraud management.

The Hidden Costs of Payments Fraud

For companies large and small, the most significant hidden cost of fraud is the human time and energy lost to these unplanned events.

Fraud is disruptive, and it can derail internal teams that must mitigate the mess, including legal, risk, technology, marketing, security and customer service. These additional costs can be harder to quantify, but they are often significant.

Other hidden costs of fraud for businesses include:

  • Brand reputation damage

  • Lost customers

  • A decline in new customers

  • Lost employees

According to Forbes, if consumers become victims of fraud, 54% would close their accounts immediately; 33% would tell friends not to do business with the brand; and 21% would post about their negative experience on social media. All in, the costs of fraud can undermine years of building a thriving brand and business.

Download the Anti-Fraud Playbook.

Part 2:

Identifying the Best Payments Fraud Partners

As payments fraud gets more complicated and costly, it’s become difficult for banks, fintechs and program managers to mitigate fraud on their own, and maintain and demonstrate compliance—especially at scale.

Manual processes and the cost of human resources (and human error) are driving more organizations to outsource fraud mitigation efforts.

Scalable fraud solutions minimize human interactions, instead using AI and machine learning—and troves of data—to identify anomalies and impending threats. And the very best fraud prevention partners are also leveraging multi-layered authentication processes, dynamic fraud decisioning and real-time insights.

Rising fraud rates have created an influx of companies looking to enter this market, which can make evaluating a partner feel daunting. While managing card fraud detection and mitigation is complex, choosing a partner doesn’t have to be.

When evaluating a payments fraud protection partner, it's important to not overlook one of the most valuable resources powering any effective fraud mitigation solution: the people.

One of the reasons payments fraud is complex is that it has many layers of regulatory and fraud compliance requirements that take different shapes depending on what type of card program you’re looking to manage.

For instance, the regulatory requirements for how organizations respond to reports of fraud—particularly if they occur on credit, secured credit, debit or prepaid cards–vary significantly.

Having a partner that understands these nuances and has built their fraud management platform to adapt with specific card program needs is essential in taking a comprehensive payments fraud management approach.

Proactively identifying, flagging and declining potential fraudulent card transactions during the transaction authorization process helps mitigate fraud and potential losses.

What Does a Modern Fraud Solution Look Like?

First and foremost, a modern solution must focus on reducing risk for both operational and transactional fraud. Ultimately, the best fraud mitigation and compliance strategy requires a holistic combination of tools, technology and people to minimize evolving fraud threats and demonstrate compliance as your business grows.

Ensure your fraud management provider has an integrated risk strategy that focuses on reducing risks for both operational and transaction fraud, while providing customer and dispute service tools to help manage customer communications and maintain compliance.

These integrated technologies cannot be built on inflexible legacy systems; instead, they should be purpose-built platforms that feature an agile suite of fraud mitigation services.

Effective fraud solutions must 'listen' to multiple data elements simultaneously. By running models on top of the company's data, the AI can identify emerging fraud trends. Real-time data needs to flow smoothly, and legacy platforms can create information bottlenecks.
Maxim Spivakovsky
Senior Director of Global Payments Risk Management, Galileo Financial Technologies
The Ideal Holistic Payments Fraud Strategy

An integrated risk strategy to addressing payments fraud consists of four key elements:

  • Operational Fraud: Post-authorization fraud management

  • Transactional Fraud: In-authorization fraud management

  • Customer Service: Fraud analysts to detect and report fraud through interactions in real-time with customers

  • Payments Fraud Dispute Management: Experts trained in fraud pattern identification, while accounting for compliance and regulation for each specific program

A modern, holistic fraud mitigation solution is like a good sports car: when all the finely tuned components are working in sync, it’s a smooth ride that’s fast and responsive. The most essential parts of any well-built fraud prevention machine include:

  • Detailed, customizable program parameters

  • Extensive compliance measures

  • Adjustable risk controls

  • Ongoing, real-time network checks

  • A proprietary fraud management platform with multi-layered analyses

Characteristics of Holistic Fraud Solutions
12 - Holistic Fraud Solutions Graphic updated-01
12 - Holistic Fraud Solutions Graphic updated-01

Of these five must-haves, the true differentiators between providers can be found in their network checks and proprietary fraud management platforms, which flank their core payments fraud prevention services. These behind-the-scenes services are what powers the advanced protection that your customers rely on most to keep their payments safe.

Download the Anti-Fraud Playbook.

Part 3:

6 Best Practices for Fraud Mitigation

There’s no shortage of providers who claim to solve every fraud problem in the market today. But there’s no silver bullet when it comes to payments fraud—it’s a constantly evolving landscape—and anyone who claims otherwise may not know the market as well as they should.

The trick to finding the right fraud mitigation partner comes down to knowing what separates the best of the bunch. These best practices can also serve as a checklist when comparing prospective fraud management partners:

1. Expect better risk decisioning with actionable, real-time data.

Relying on machine learning and AI-driven tools to deliver Real-Time Decisioning (RTD) is the gold standard.

  • Your payments fraud partner should be able to run advanced rules, ingest hundreds of data points, check networks, and apply other machine-learning models that help proactively address transactional fraud risks before they escalate.

Analyzing millions of data points in real time is a process that payments providers shouldn’t have to think about.

  • That process runs invisibly behind each transaction and includes a series of instantaneous verifications to ensure secure, fast, accurate, resilient and PCI-compliant authorization.

  • This engine is the brains behind a payments fraud solution, and it’s mission-critical to the fraud mitigation services offered by a partner.

With data comes reporting, which means actionable insights—not just numbers—available through interactive dashboards.

  • These visual tools are essential for monitoring the effectiveness of fraud mitigation programs, and helping internal teams stay ahead of fraud risks.

  • This proactive approach provides the difference between addressing fraud risks before the costs escalate and cleaning up a slew of costly fraud incidents long after they’ve occurred. Comprehensive fraud management is about constant maintenance that effectively keeps an organization ahead of risks that might occur.

The alternative? Waiting until fraud occurs and relying on incomplete data sets to determine how to stop costly fraud threats that have already escalated.

2. Rely on AI and dynamic data analysis to inform fraud risk management.

More data isn’t always better, especially if it’s static. When it comes to payments fraud and risk management, changes in data must be examined constantly and in real time by an AI decisioning tool that performs pattern analysis and prediction. Simply put: the better the inputs, the better the outputs that identify where a company’s greatest risks exist.

  • Relying on real-time risk analytics that considers where and how fraud is occurring, AI and machine learning models are built to proactively identify the greatest payment fraud risks across an organization’s card programs.

  • AI and dynamic data analysis really show their value when combined with experts who can make sense of the data. AI and machine learning are great for doing the heavy lifting, but data alone won’t recommend a specific fraud management approach to your current or prospective fraud risk. That’s where our next few tips come into play.

3. Look for multi-layered solutions that offer more comprehensive fraud and risk protection.

In today’s complex fraud landscape, there’s no single strategy that will manage all fraud risks.

  • A multi-layered payments fraud strategy that combines a variety of solutions working in tandem is today’s best way to address risk from every angle.

  • This includes obtaining a truly comprehensive overview of an organization’s overall fraud risks — where they are occurring or where they are most likely to occur based on cardholder spending patterns and industry trends that are evolving.

  • This allows fraud to be proactively stopped. Other important “layers” are rules-based validations, velocity controls and network checks.

4. Save time, money and headaches by outsourcing customer service and disputes.

When a company puts payments fraud in the hands of outside experts, it frees up internal resources that can be refocused on higher-value, client-facing activities.

In the fight against fraud, there will always be a collaboration between machine and human, but the best fraud management platforms save high-cost human resources for a small subset of fraud work. These highly trained fraud analysts, who are skilled in fraud pattern identification, focus on a certain subset of disputes and chargeback management to maximize resources and provide frictionless experiences for more customers.

  • By outsourcing this labor-intensive work, enterprises can refocus internal energies on ROI-generating activities.

  • Taking a collaborative approach to payments fraud management also helps organizations scale their payment programs at speed because they are able to focus on the activities they do best, such as nurturing customer relationships and growing their card portfolios, while leaving the rest to the experts.

  • Working with a payment fraud detection expert allows organizations to address fraud risks and payment disputes in a timely manner, while keeping them in compliance.

5. Demand a holistic, tailored strategy that handles end-to-end payments fraud services.

It’s no longer enough to plug a fraud solution into a payments system and call it a day. Thanks to the proliferation of APIs, more and more organizations can be connected to a company’s technology stack—helping protect against the many vulnerabilities that exist across an organization’s payments system. That’s why an end-to-end payments fraud platform that can address both transactional and operational fraud risks as they arise is an absolute must-have.

A comprehensive approach is about reducing risk while improving ROI, which happens at the program level.

  • This requires addressing transactional fraud and operational fraud, which focuses on identifying and minimizing fraud during the transaction flow (in-auth programs, known as transactional fraud) and after the transaction flow (after-auth programs, known as operational fraud).

You’ll want to round out this end-to-end payment fraud services strategy with fraud analysts who will work to provide you a solution built around your card program needs.

  • This includes fraud and program management experts who understand how to leverage insights gleaned from machine learning technology to identify where specific fraud risks exist across your portfolio.

  • An AI, rules-based, approach ensures your fraud program identifies and targets your greatest risks, while monitoring what risks might exist in the future.

6. Look for customized solutions that fit your payments product and account holder profiles and put the right amount of resources to work.

Each program has its own fraud profile that requires a highly-tailored strategy and risks analysis across each client’s specific card portfolio.

From required resources to KPIs, look for a partner that proactively stops fraud with rules that are tailored to your program’s specific needs.

  • This should utilize the latest automation, AI and machine learning elements that can constantly be evolving with ever-changing fraud threats.

From required resources to KPIs, look for a partner that proactively stops fraud with rules that are tailored to your program's specific needs.

This should utilize the latest automation, AI and machine learning elements that can constantly be evolving with ever-changing fraud threats.

The Payoff for Using Best Practices

Companies that invest in multi-layered solutions and follow industry best practices can significantly reduce fraud rates and the cost of managing fraud. But what kind of savings should you expect? What is the ROI of this investment compared to the cost of doing nothing?

According to Galileo client data, top solutions providers can reduce fraud rates by as much as 35% while minimizing false positives and maintaining a positive, friction-free customer experience.

With the unprecedented growth in transaction and digital payments volume, the surge in fraud is inevitable, making it easy to put together a business case for investing in a reliable, scalable outsourced fraud solution.

Fraud management will continue to be a dynamic balancing act between risk tolerance and the reward of serving legitimate customers well. And fast-growing fintechs and financial service providers must invest in a robust fraud management program – or work with a provider who can help them stay ahead of the latest threats.”

15 - Stats Graphic
15 - Stats Graphic
What Makes the Galileo Payment Risk Platform so Powerful?

The numbers speak for themselves. Based on Galileo client data, we can help financial services providers decrease fraud loss up to 35%, and lower authorization declines by 25% —saving 1 in every 400 transactions from being declined to help protect the customer experience, and your bottom line.

Galileo Payment Risk Platform applies a custom rule and AI models-based approach that relies on key trends from the industry, as well as consortium data that provides insights from more than 100 million spend patterns.

Galileo provides consortium, near real-time fraud risk analytics and strategy assessment of rules, merchants, location activity, etc., along with ongoing fraud monitoring systems and risk model performance assessments for offline monitoring.

Combining the Power of People, Data and Technology

Galileo's Payment Risk Platform is purpose-built to reduce fraudulent transactions that lead to customer disputes and chargebacks.

  • With real-time risk analytics and strategy assessment capabilities to get ahead of fraud risks before they escalate, Galileo’s DFE carefully balances a robust fraud solution with excellent customer experience.

So, what’s the secret power behind Galileo’s Payment Risk Platform?

It’s not just the modern technology; it’s the people, combined with the data analytics and technology, that creates the holistic approach.

No matter how much fraud data an organization has, or how sophisticated their payments fraud detection or eCommerce fraud detection technology is, it’s the people behind the technology that make the insights gathered from payments data actionable through a comprehensive fraud management program.

An Integrated Payments Risk Management Strategy

Galileo’s Payment Risk Platform offers an integrated risk strategy solution that focuses on reducing risk for operational and transactional fraud—as well as providing customer and dispute service tools. The end goal is to reduce fraud mitigation costs, while improving card program ROI.

The not-so-secret power behind the Galileo Payment Risk Platform is:
  • The combination of technology and dynamic data can be tailored to address a company’s specific fraud pain points while still providing overall detection and mitigation services.

  • With machine learning and AI, new customer payments information is analyzed rapidly, creating a smarter, more specialized solution over time.

Better Decisioning that Maximizes Good Transactions and Minimizes Payment Fraud

Payment Risk Platform receives fraud insights and intelligence, which is then used to create risk data to inform dynamic fraud decisioning.

  • The approach relies on using network risk checks, program and account level controls and advanced rules enhanced by machine learning-based models and a rich data store.

  • Organizations can maximize good transactions and minimize fraud by applying the most up-to-date fraud rules and strategies.

This proactive approach to payments fraud detection and online fraud protection applies a layered combination of mitigation controls, fraud analyst expertise and machine learning to provide a comprehensive view of where the greatest payment fraud risks exist across a card portfolio.

For financial institutions with a rapid growth trajectory, the Galileo Payment Risk Platform is designed to scale without missing a beat. Businesses that leverage Galileo’s holistic approach to fraud protection not only reduce their fraud losses, but they also lower their incidence of customer experience-killing false positives.

For executives who must manage the complicated and costly outcomes of payments fraud—including the resulting customer disputes and chargebacks—it’s important your partner has a proven track record and deep payments industry roots.

Let Galileo help your company mitigate payments fraud risk with our proven, purpose-built technology. Galileo helps you offload operational complexities, and save time, money and resources. Most importantly, we can help you save your customers from the frustration and inconvenience that false positives and payments fraud can cause.

With Galileo, you have an industry-leading detection and prevention solution, and a partner you can trust.

Download the Anti-Fraud Playbook Now.

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