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Combatting payment fraud: Effective strategies for detection and prevention

In 2022, criminals stole a staggering £1.2 billion through different types of fraud. With the ever-evolving use of the internet, fraudsters are continuously developing new ways to target individuals. With this in mind, protecting yourself and your business against potential attacks is now more critical than ever.


Understanding payment fraud

Payment fraud can be catastrophic for businesses and SMEs, often resulting in substantial financial losses. Without completing the appropriate identity checks, your business is left vulnerable to attacks carried out by social engineers.

Payment fraud can present itself in many forms, but this typically starts with a fraudster attempting to obtain sensitive information such as bank account details or login credentials. They’ll then use this information to carry out unauthorised transactions using these details. 

Learning about the different types of fraud and tactics used to obtain your information can assist you in identifying potential threats before they become more problematic.


Identifying and detecting fraud

Payment fraud comes in many forms and social engineers are developing increasingly sophisticated ways to trick individuals into parting with their sensitive information.

One of the most common tactics criminals use to obtain private information is phishing emails and spear phishing, but there are many different methods social engineers can use to gain access to your finances. If a company doesn’t do its due diligence and completes appropriate identity checks, they risk losing money.


Indemnity claim fraud

Indemnity claims occur when a payer takes advantage of the Direct Debit guarantee and claims back a payment. The bank must offer a full, immediate refund if a Direct Debit has been taken without authority or as an error. This refund is then claimed back from the business that initially took the Direct Debit payment.

In the case of indemnity claim fraud, the fraudster falsely claims the payment was unauthorised to claim money back for a service or product while retaining the goods. If the company hasn’t carried out the necessary identity checks and can’t provide evidence of the payer signing up, then they’re unable to challenge the claim and could potentially result in financial losses for the business.



Out of all the types of payment fraud businesses experience, phishing is by far the most common, with 83% of all fraud attempts in 2022 relating to this type of fraud.

Phishing is a tactic where social engineers obtain personal information such as card details, personal information and login details unlawfully using nefarious methods. Often these attempts are carried out using fake emails, websites and text messages. Once obtained, the fraudster will use the sensitive information gathered to make unauthorised transactions and conduct other types of financial fraud.


Spear phishing 

Similar to regular phishing, spear phishing is an insidious method by which criminals trick account administrators into paying credits to a fraudster’s account.

Spear phishing is a social engineering tactic which targets specific individuals or businesses, often using a spoofed email address. To do this, the fraudster obtains as much information about the victim as possible to create an email that appears to be from a trusted sender, creating a false sense of security.

Phishing emails aim to extract personal information such as login credentials, banking information or credit card numbers. Where regular phishing emails target a wide audience, spear phishing is more targeted and coordinated. These attacks often use familiar information to infiltrate businesses and obtain sensitive details.


BIN attacks

Though less common than other types of fraud, businesses need to be aware of BIN attacks. With this type of fraud, criminals attempt to generate many card numbers based on the card’s BIN number. The fraudster will then use these numbers to try to make unauthorised transactions, hoping that some will go through.


Account takeover

Also known as hacked accounts, this type of fraud happens when a criminal logs into an account and uses the sensitive information stored within it, such as billing details. The fraudster will then attempt to either use these details to make unauthorised transactions or, in some cases, will resell the account.


Fraud prevention

Although it’s crucial to identify and detect potential threats, learning how to prevent attacks is the most vital factor in protecting your business.

Now you’re familiar with the different types of payment fraud which pose a risk to your business; it’s time to look at preventative measures to safeguard your business from attacks.



One of the first steps businesses can take to protect themselves against payment fraud is to complete know your customer (KYC) checks. These checks enable your business to identify and validate the details of potential customers so you can confidently know customers are who they say you are.

Any company that wishes to provide a Direct Debit service has an obligation and responsibility to complete KYC checks. Using information such as name, address, account number and sort codes to verify customers' identity can protect you against fraudulent attacks.


Use reliable software

Completing identity checks can be complex and intricate. However, the correct software can help your business concentrate on the day-to-day while remaining secure. Some software, such as InterPass, can perform the KYC checks mentioned above and much more.

To fully protect your business, select professional identity verification software that enables you to easily and accurately check the identity of potential customers by checking names match bank details while flagging which details are near matches or incorrect.

This is especially critical for Direct Debit providers, as it's their responsibility to identify customers and validate details. Reliable software with robust features will go a long way in ensuring safety and compliance.


Restrict access to sensitive information

Restricting sensitive information to only essential employees can significantly reduce your fraud risk. By doing this, you’ll reduce the probability of information being leaked or compromised.


Avoid paper invoices

Recording business transactions on paper makes them susceptible to theft which can lead to payment fraud further down the line. Storing documents electronically on a secure system combats this.


Use strong authentication

Multi-factor authentication is a secure and robust way to protect your sensitive information, business documents and finances.


Stay updated

Payment fraud is continuously evolving, so you must stay updated with the latest tactics fraudsters use to obtain sensitive information to protect your business. 

In the internet age, many businesses conduct most of their operations online. With this increased global connectivity, fraudsters continually seek ways to exploit this and obtain confidential information. 

You can better protect your business against attacks by staying updated with current threats.


Take the next steps

The evolving threat of payment fraud should be treated as a priority when safeguarding your business. Payment fraud can devastate all who fall victim and result in substantial, irrevocable losses.

If you want to learn more about the different types of payment fraud and how to identify and prevent attacks effectively, we’ve got you covered. We have created a comprehensive guide to help you safeguard your business against attacks. Click below to learn more.

payment fraud prevention playbook cta