How to Recognize Different Types of Payment Fraud?

How to Fix And Recognize Different Types of Payment Fraud

Payment fraud is a very real problem, and the threat is growing. In fact, it’s estimated that fraud resulted in losses of $41 billion worldwide in 2022. 

Considering this, businesses need to do everything in their power to prevent fraud from derailing their efforts. 

This begins with identifying instances of payment fraud. After all, if you cannot identify payment fraud, how do you expect to be able to stop it?

With that being said, in this blog post, we’re going to reveal everything you need to know about recognizing the different types of payment fraud.

What is Payment Fraud?

Before we can look at the different types of payment fraud, we first need to explain what it is. Payment fraud refers to transactions that are carried out without the consent of the cardholder.

Most instances of payment fraud happen once credit card or debit card details have been stolen and appear on the dark web. 

Other payment methods, for example, phone payments and virtual checks, can be defrauded, so long as the cybercriminal has gathered the correct data. 

From the perspective of the criminal, it’s a means to an end, i.e. a way of making money as quickly as possible. 

How Payment Fraud Happens?

Payment fraud occurs when a cybercriminal has gathered the personal information or credit card details of the victim that are required to carry out a transaction. 

While card testers or amateur criminals are typically caught by the majority of modern anti-fraud systems, advanced and sophisticated attackers will try to make transaction data appear legitimate so it can fool the system. 

Transaction data includes the likes of the user’s registration email, the name on the card, or the IP address. 

If they are successful, the business targeted will lose the service/item you are selling, and you’ll be liable for the cost of the chargeback if the cardholder files a claim at their bank. 

Different Types of Payment Fraud and How to Recognize Them

Now that you’ve got a good understanding of what payment fraud is, let’s take a look at some of the different types of payment fraud and how you can mitigate its risk of it. 

Malicious-Friendly Transaction Fraud

There is only one place to begin, and this is with what’s known as friendly fraud. We know what you’re thinking; there’s nothing friendly about fraud, right? Of course, you’re right!

Payment fraud happens when a consumer makes a purchase online using his or her own credit card, yet then gets in touch with the credit card issuer to initiate a chargeback. 

In these instances, the consumer will get in touch with the credit card issuer and claim that they didn’t receive the item in question or that they returned it but they didn’t get a refund. In some scenarios, they may even claim they don’t remember making the purchase so they feel their card must have been compromised. 

Now, this is not to say that every chargeback is fraudulent. This is certainly not the case. There are lots of legitimate chargeback claims. However, friendly fraud has been used for fraudulent reasons as well. 

To mitigate the risks of this, it’s a good idea to make sure customers sign for proof of delivery whenever they receive a package. 

Wire Transfer Scams

In the last few years, wire transfer scams have been increasing in popularity. Also known as wire fraud, a wire transfer scam is when a hacker acts like a trusted source, such as a business, family member, or vendor, and requests a wire transfer to be made immediately to their account.

You may have seen these attacks going around on social media as of late. The hacker may text a parent claiming to be their child, saying they’ve got a new phone and they need money immediately. 

This is just one example of many. Education is very much needed so that individuals can spot the signs of these scams and ensure they don’t fall victim to them. Businesses need to dedicate time and resources to educating their workers and their customers. 

Phishing Attacks

Next, we have phishing, which involves sending fraudulent communication to possible victims.

The aim of phishing is to trick the recipient into believing that the message has come from a reputable source, such as their bank or a retailer so that they’re lured into giving away private data.

Most commonly, fraudsters will ask for the user’s bank account details and/or credit information. They can also ask for other personal data, such as their address or name. 

Research indicates that one in every 4,200 emails sent is a phishing email. When you consider how many emails are sent every day for promotions, work purposes, and so on, this is a pretty high number. 

There are different types of phishing attacks. Here are some examples:

  • Email phishing – This is the most common type of phishing. This method usually incorporates a ‘spray and pray’ practice whereby fraudsters impersonate a legitimate identity or business, and then send mass emails to as many addresses as they can. Phishing emails tend to have a sense of urgency or a threat, informing the recipient that their account has been compromised or they need to make an urgent payment. 
  • Spear phishing – Spear phishing has more of a personalized approach, which means cybercriminals send malicious emails to specific people within a business. 
  • Vishing – Vishing involves using phone calls to carry out fraud. This method is typically disguised as an automated voice message from a legit business claiming you have a debt that needs to be instantly paid. 
  • Smishing – Smishing uses text messages rather than email communication. It operates on the same principle, with mass text messages that look like they come from a trusted organization or a reliable source. 
  • Whaling – Whaling is very much like phishing. Nevertheless, rather than targeting regular employees in a business, hackers will go straight for high-level executives, such as CFO, CTO, or the CEO. In other words, the big fish are targeted! 

Clean Fraud

Next, we have clean fraud. This refers to fraudulent transactions that look legitimate, even though they’re not. This can be a massive issue for merchants because these transactions are not always flagged, which makes them hard to detect. 

What makes this kind of payment fraud different from the rest is that cybercriminals utilize real data to carry out their cybercrimes. They’ll impersonate the original cardholder. 

So, while friendly fraud attempts to hide behind stolen data or fake identities, hackers that opt for clean fraud will typically have a significant amount of knowledge about the cardholder and their credit card information. They fool the merchant into believing the real consumer is using their account. 


Last but not least, triangulation is another common type of payment fraud. The name of this tactic indicates that there are three parties involved in this transaction:

  • The stolen data
  • The online store
  • The unsuspecting consumer

Triangulation fraud typically occurs when a legitimate consumer buys a product on a third-party marketplace, which is the fraudster. 

After this, the fraudster will then go and purchase the same product via a genuine retailer, for example, eBay or Amazon. 

To complete the payment, the fraudster will use stolen payment information to fulfill the transaction. This will typically be a credit card they’ve bought on the dark web.

The genuine seller will process the order and send the item to the shipping address provided by the consumer. 

So, while the customer ends up getting the exact product they ordered, the merchant will have processed a fraudulent transaction. 

What makes this type of fraud so dangerous is the fact that the consumer may never realize that something untoward has happened. 

One of the best ways to detect issues of this nature and prevent them in the future is to utilize a PCI-DSS-compliant payment gateway. 

Protecting your business starts by recognizing different types of payment fraud so you can prevent it

As you can see, there are a number of different options at your disposal when it comes to recognizing the different types of payment fraud. 

It’s imperative to put provisions in place so you can make sure that your business does not end up being a victim of a vicious data breach. After all, the future of your company depends on it! 

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