What Every Payment Service Provider Should Know About the Fraud Economy

The Fraud Economy is vast and growing daily as fraudsters find new ways to exploit the broad surface area of the payment ecosystem. In the payments industry, the massive amount of point payment tools available pushes payment service providers (PSPs) to differentiate themselves with real-time adaptability—they must consistently predict and meet the needs of all sizes and kinds of merchants.

As illustrated in Sift’s Fraud Intelligence Center, PSPs saw a 169% increase in payment fraud rates in 2021. Note that fraud in this space is calculated based on the combined abuse rates reported by merchants served by Sift’s PSP customers. Our Data Scientists uncovered a key theme: fraudsters follow the money, always, and develop new tactics to take advantage of cutting-edge businesses almost as quickly as they emerge. On top of that, there are ever-changing expectations from and for online shoppers, from adopting alternative payment methods to regulatory innovation. This pressures PSPs of all sizes to maintain operational preparedness for the attack vectors that fraudsters will employ to exploit business growth and evolution.

Fraud and pain within PSPs

For PSPs, attack vectors are varied, and fraudsters always seek new channels to attack, and addressing fraud at different levels is uniquely challenging.

Direct merchant fraud, in which malicious actors collude to create merchant accounts and even legitimate-looking storefronts with the express purpose of committing payment fraud. This could be processing compromised payment methods in order to liquidate stored value or for low-friction card testing.

Consumer fraud against merchants, in which the fraud economy impacts your merchants by committing card testing or other payment fraud against legitimate businesses. While the majority of this pain is carried by the merchants in the form of lost revenue and chargebacks, with their associated fees, PSPs also bear a portion of the cost of high chargeback rates and dissatisfied merchants.

The first step to mitigating fraud for many businesses is commissioning a team for manual review. But manual review is nearly impossible for PSPs, due to their unique position serving multiple independent merchants. In many cases, service level agreements (SLAs) require real-time payment processing, which means transactions cannot be “paused” for the sake of review regardless of their risk level.

Due to the limited data merchants send them, PSPs also lack insights that other types of providers rely on to stop fraud, like item type and user account age. Lighter merchant integrations require a total reliance on disputes to identify fraudulent transactions, and potentially miss false-positive feedback.

PSPs must also choose between reviewing all potential fraud in one account with limited filtering options, or reviewing unique fraud patterns across numerous merchant accounts. This could challenge a PSP’s operational capacity at scale, degrading accuracy as the business processes higher volumes of transactions.

The changing regulatory landscape is pressuring PSPs to retool their transaction monitoring and identity stack. Adoption of 3DS is expanding globally, and PSD2 for the EU and UK is gaining interest internationally as Turkey, Mexico, and Australia consider similar regulations.

Sift solves PSPs’ fraud woes

PSPs need a comprehensive approach for battling the evolving Fraud Economy. Real-time machine learning surfaces and stops fraud in milliseconds, giving PSPs time to act while fulfilling SLAs. Sift protects PSPs with active monitoring and automated Workflows that streamline decisioning, and a Global Data Network that brings unmatched accuracy and speed using collective learnings from multiple geographies and industries. Additionally, Sift Connect links PSPs with Know Your Customer (KYC) and identity verification (IDV) providers to ensure account creations are legitimate.

Sift currently provides PSPs with:

• Fintech-specific API support for various payment types, mapping money movement, and highlighting merchant trends
• Real-time machine learning that surfaces details on PSP platform activities, even if merchant data is limited
• PSD2 regulatory compatibility (EU and UK), with expert guidance available for PSPs routing to 3DS

Throughout 2022, Sift customers will gain access to new toolsets specifically designed to ease the burden of fraud prevention for PSPs:

• Insights reporting to empower deeper dives into patterns and trends within merchant segments, using search, sorting, filtering, and grouping
• A flexible Console experience that supports merchant account management based on the PSP’s business needs (i.e., single- or multi-tenancy)

To ensure PSPs stay ahead of the changing landscape of the Fraud Economy, Sift has purpose-built our Digital Trust & Safety suite to meet the needs of every PSP. Join us in the fight against fraud with cutting-edge technology and services to bolster your competitive advantage for your merchants and within the entire payment ecosystem.

Contact us today to find out how Sift can help you offer a competitive advantage to your merchants.