How To Implement Fraud Risk Management That Works

Financial loss due to fraud is a problem companies will have to defend against, building increasingly powerful and sophisticated systems to stay current. Considering the many ways criminals have found to defraud companies — with tactics constantly evolving — the need for effective fraud risk management is clear. Anywhere a fraudster can steal funds is a possible source of risk including credit card information theft, gift card abuse, automated clearinghouse compromises and many more methods.

Sometimes, fraudsters are individuals who have never committed a financial crime before. In other cases, they’re parts of vast and professionalized organizations dedicated to reselling as much ill-gotten property as possible. The U.S. Sentencing Commission recorded over 64,000 “credit card and other financial instrument fraud” cases in 2023, nearly 50% of which were perpetrated by people with little or no criminal history.¹

Therefore, it’s up to merchants and other business owners to find the most effective possible ways to stay aware of potential fraud and protect themselves.

Why Does Fraud Risk Management Matter?

Unfortunately for consumers, financial institution leaders and merchants alike, payment fraud is a widespread and varied problem. It’s a catch-all term for someone making an unauthorized purchase, and in today’s interconnected and highly digital business environment, fraudsters are constantly finding new ways to commit this crime.

It is important to note that businesses are dealing with several different types of fraud risk, all at once. Categories of fraudulent behavior include:

• First-party fraud: Sometimes incorrectly called Friendly Fraud, these are cases in which a company’s customers take advantage of the business’s systems for their own gain. They may commit return fraud or improperly dispute a credit card transaction, triggering an unwarranted chargeback from their credit card issuer. While these issues are smaller in scale, it’s important for companies to have defenses against them, because they do add up over time and can result in more financial loss than some third-party fraud use cases.
• Organized payment card fraud: This is large-scale theft perpetrated by sophisticated gangs and criminal organizations operating through secure communication channels and coordinating their efforts online.

Leading Fraud Risk Factors

While first-party fraud is relatively simple in concept — consisting as it does of identifiable individuals misusing a company’s policies in detectable ways  — there are a wide and ever-increasing number of ways for criminals to perpetuate theft and fraud on a larger scale.

Leading theft methods include:

• Credit Card Fraud: The amount of stolen credit card information available to criminals on the dark web fluctuates from year to year, but it remains high. In 2023, the number of compromised cards circulating rose to 119 million.² Bad actors keep the stock of stolen credentials fresh by using methods like skimming card information and breaching merchant databases. Criminals in organized gangs can use these stolen credentials en masse to buy goods from merchants for resale.
• Gift Card Fraud: This less direct, less traceable form of payment card fraud was responsible for $217 million in financial loss in 2023 in the U.S. alone.³ Fraudsters have several methods of stealing card information, from copying numbers on store displays to scamming consumers through social engineering.
• ACH Fraud (Open Banking): ACH is increasingly popular as a direct way of stealing money. This method involves fraudsters stealing the identity of a third party and then accessing an automated clearinghouse responsible for releasing funds. In 2023, 47% of financial organizations were affected by ACH credit attacks and 20% suffered from ACH debit attacks.⁴ With PSD2 & PSD3 in Europe introducing the ability for more parties to partake in open banking, this type of fraud is on the rise.

The ways to steal information are constantly evolving, and merchants need to find a way to guard against all of them simultaneously. Resourceful and opportunistic criminals will take any opportunity to obtain and use stolen funds and credentials. This environment calls for sophisticated fraud risk management systems that meet companies’ advanced risk mitigation needs.

Fraud Risk Management: Finding the Right Method

There’s no doubt that companies need some kind of defense against fraudulent payments. The only question is what form those businesses’ protective systems should take. This is where merchants can differentiate themselves from one another, with some deploying more sophisticated and suitable methods than competitors.

There are a few high-level details that can determine whether a company’s current approach to fraud risk management is meeting the challenges posed by the threat landscape today. 

Flawed Approaches to Fraud Risk Management

In some cases, unsuitable tools for fraud risk management are legacy solutions that have outlived their usefulness. Often, these are purpose-built systems that aren’t competitive with state-of-the-art offerings. Some markers of deficient options include:

• Using numerous, mismatched technologies: Cobbling together protective systems out of several separate applications is a problematic approach because these solutions may not communicate with one another or may duplicate functions. This may especially pose a problem for global companies that use multiple fraud detection systems, one from each of their acquirers. Assembling multiple products that aren’t meant to work together raises the potential risk of friction and inefficiency, taking the focus off the systems’ purpose, while making even simple actions like running reports into time-consuming, complex tasks.
• Trying to find “silver bullet” fraud signals: Acting against fraud risks means knowing what the potential fraud entails as quickly as possible. Legacy systems or less advanced technologies sometimes try to accomplish this by targeting specific signals, which can quickly become outdated. For example, flagging VPN activity was a way to achieve an early warning, but today VPN use is so commonplace that it’s more likely to create numerous false positives without narrowing down risky transactions.
• Adding friction to the customer experience: Some fraud prevention systems work by adding extra manual checks to the merchant’s online storefront. While this is a relatively common and straightforward form of fraud risk management, it does come with risks for businesses. Creating an inconvenient transaction experience, such as challenges or unnecessary friction, creates the potential of shopping cart abandonment and even to lose repeat business from dissatisfied consumers.

Better Approaches to Fraud Risk Management

For each problem in risk management, there’s also a more suitable alternative. When comparing specific fraud prevention technologies, business leaders can consider each of these factors and select a system capable of delivering them. These signs to look for include:

• Singular, specialized platforms: When there’s only one platform for fraud risk management, companies can right-size their approach to protection. Rather than worrying about systems that duplicate functions or integrate awkwardly, leaders can simply select technologies that do exactly what they need them to, protecting against leading payment fraud methods.
• Up-to-date, actionable signals: Companies need to use signals that accurately reflect the current threat landscape, rather than the patterns that existed years ago. Machine learning models can help them in their efforts to spot new patterns and act on them.
• A smooth, invisible customer experience: The most consumer-friendly fraud risk management systems are nearly undetectable, running in the background, using signals such as location, device type and behavior to determine which customers and transactions are dangerous.

How Does Advanced Fraud Risk Management Work?

Solutions like Accertify Fraud Management use artificial intelligence and machine learning to enable organizations to take a tech-forward approach to fraud risk management, all without losing contact with human insights. The combination of automated and expert-driven approaches allows real-time detection and assessment of threats that doesn’t interrupt the customer experience.

The advanced system runs on four pillars, each contributing to the overall performance of the risk prevention system:

• Prediction: Today’s advanced ML algorithms use hundreds and thousands of data inputs and are capable of detecting patterns and fraudulent activity signals too subtle for legacy systems to detect. By seeing which users and transactions are most likely to present fraud problems, cutting-edge solutions can accurately and quickly sense danger. These clear, timely signals allow companies to allow as many transactions through as possible in a friction-free way, keeping fraud detection from hurting the customer experience or the bottom line.
• Prevention: A risk decisioning system that integrates smoothly with other systems via API allows users to manually weigh in on transactions with some potential risk of fraud while proactively blocking suspected fraud incidents with strong warning signs. This is a fast, decisive process requiring minimal staff time.
• Protection: The protection systems included in the platform are designed to continuously improve, becoming more effective at determining which transactions to block — and which to allow. The result is less fraudulent activity and more acceptances of legitimate transactions for a combination of security and a smooth customer experience.
• People: While the Accertify Fraud Management platform is deeply entwined with advanced AI and ML solutions, it’s also backed by human knowledge. Domain expertise and a human perspective act as useful complements to digital tools.

Upgrade Your Approach to Fraud Risk Management

Adopting Accertify Fraud Detection is a way to both protect your organization’s bottom line against fraud loss and preserve the customer experience. The solution isn’t a one-size-fits-all experience — depending on the scale of your business and the size of your internal team, you can opt for a self-managed, fully managed or strategy-building auto-review model.

With the combination of advanced technology, hands-on expertise and your own organization’s existing fraud prevention infrastructure, you can build out a risk mitigation approach that will help you stay secure and competitive within your sector.

Learn more about Accertify’s Fraud Detection Solution and move at the speed of right.

^[1] USSC, 2024

^[2] Insikt, 2023

^[3] Stateline, 2024

^[4] AFP, 2025