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Transaction risk and payment fraud are rapidly growing threats across the globe. No matter your industry, fraudulent payouts can wreak havoc on your finances and erode customer trust. This phenomenon arises from vulnerabilities within payout transactions. These vulnerabilities expose businesses to factors like account takeovers, manipulated refund schemes, and systemic failures. These factors disrupt the intended outcomes of transactions, impacting a company’s bottom line and reputation.
What are the types of transaction risks?
Account takeover: A deceptive threat in payout fraud
Account takeover (ATO) is a prevalent form of payment fraud within the realm of payout transactions. Similar to online phishing, ATO involves unauthorised access to user accounts by employees or external fraudsters. These criminals then leverage stolen credentials – usernames, passwords, bank details, and the like – to initiate fraudulent payouts. Often, the initial attack vector comes through seemingly legitimate emails or SMS messages. Once compromised, the fraudsters divert funds through unauthorised payouts.
Rewards schemes abuse: Turning rewards into losses
While rewards programs aim to incentivize customers, they can also become a target for fraudsters. Such cases occur when individuals exploit loopholes or manipulate the system to gain rewards. This can take various forms, such as:
- Fictitious Accounts: Creating multiple fake accounts to accumulate points or rewards.
- Purchase Manipulation: Making fraudulent purchases with the sole purpose of generating rewards, often with immediate returns or cancellations.
- Exploiting Glitches: Taking advantage of technical errors or bugs in the rewards program to inflate points or rewards balances.
- Cashback Collusion: Participating in schemes where rewards are converted into cash illegally, often involving third parties.
These fraudulent activities not only impact the program’s integrity but also eat into a company’s bottom line.
Systemic internal failures and double payouts: When internal errors become expensive
This is a case where a company-specific or industry-specific internal event in the processes triggers transaction mistakes. Systemic failure and double payouts were the major contributors to the global financial crisis of 2008, and it’s still a problem affecting the economy significantly. Even the companies that are considered ‘too big to fail’, have been affected by systemic failures. Strange patterns of transactions occurring to wrong bank accounts is a classic example of systemic failure.
Example – Consider that your company has a wallet-based customer account where customers can withdraw money from the wallet via a real-time payout. There have been scenarios where customers had withdrawn the money but the wallet balance didn’t reduce leading to fraud activities on the platform. In this case, one customer with a wallet balance of 500 can withdraw 500 rupees infinite times.
Disbursement Errors: A double-edged sword
Errors within the disbursement process itself can also create opportunities for fraud. These errors encompass both unintentional mistakes, such as incorrect payment amounts or disbursements to unintended recipients, and potentially deliberate actions to exploit weaknesses in the system.
Example – Consider a scenario for bulk payouts where rather than sending 15000, payouts went for 1.5 lakh per person via API or bulk upload.
Identity theft: A betrayal of trust
Payout fraud can also occur through a more personal form of attack – identity theft. In these scenarios, fraudsters, either malicious employees or external criminals, illegally obtain a user’s personal information, such as driver’s licences, PAN cards, or Aadhaar details. Armed with this stolen data, they bypass security measures and initiate unauthorised payouts. This type of fraud thrives on lax identity verification procedures and a lack of robust transaction monitoring.
How to mitigate transaction risks?
To mitigate the transaction risks, certain precautions are to be followed by all the stakeholders of the companies processing payout transactions. Also, the payout processes need to be audited and necessary changes are to be implemented to detect and stop fraud.
- User access should be restricted based on their roles
- Multi-factor authentication should be added to block unauthorised access
- Necessary checks and automation have to be in place to block fraudulent transactions
- Fraudsters should be detected and stopped before they make transactions
- Unusual transaction patterns should be identified smartly and checked on immediately
- Stay informed of the fraud trends and update the system and processes accordingly
Introducing RiskShield by Cashfree Payments
Cashfree Payments has got the merchants covered against fraud with RiskShield – a powerful set of algorithms and mechanisms designed to help you detect unusual activity and prevent errors and frauds, making your payouts safer and more efficient.
Why do you need RiskShield?
RiskShield not only enables you to identify and block suspicious transactions, but also equips you with smart features and enhancements to your existing payment disbursal infrastructure that saves your transactions from fraud to minimal user intervention.
Identifying and blocking suspicious transactions
RiskShield helps users identify suspicious transactions and group them so that they can review them later and block or approve the same. This feature fights against API/account takeovers, systemic failures, etc.
ML-Based anomaly detection in transactions
The powerful risk mitigation mechanism scans each and every transaction with the help of a machine learning based anomaly detection in transactions. This mechanism detects suspicious patterns in transactions and blocks and brings them for the user’s reviews.
Blacklisting transactions
With Cashfree Payments’ ‘My Blacklists’, add the fraudsters you identified to a blacklist & let Cashfree Payments automatically block payouts to them.
Ready-made Cashfree Blacklisting
RiskShield provides a readymade blacklist for you with the known fraudsters identified from the databases of regulatory bodies like SEBI, IRDAI, RBI, police databases, etc.
Setting Smart limits
You can configure the limit of the transfer amount and time to disable the outgoing transfers to mitigate your risk. For instance, you can set the maximum transfer amount, maximum transfer amount per day, maximum transfer amount per day per beneficiary, etc.
Handling large volumes of transactions
With RiskShield, the users get access to a robust infrastructure of payouts that can handle 1 lakh transactions per minute, while tracking them all at the same time with no intervention from the users. They can go through the transaction reports and block or approve the transactions.
Who can use RiskShield?
RiskShield goes beyond a one-size-fits-all solution. It adapts to the needs of businesses from various industries.
For example, banks and NBFCs benefit from secure payouts and automated customer screening during loan disbursements; E-commerce businesses can streamline vendor and driver payouts while ensuring security with fraud detection and prevention. Travel and hospitality companies gain peace of mind with pre-built blacklists and ML-based anomaly detection to safeguard partner payouts. This versatility makes RiskShield a valuable tool for businesses across multiple industries.
Conclusion
Transaction risks are ever-evolving and have always been a threat to businesses of all industries. Merchants and other users who process payment disbursals should be vigilant about protecting themselves against fraud. Cashfree’s RiskShield has got you covered with all these potential risks with a robust, best-in-class set of features to safeguard your transactions. Explore RiskShield and fight fraud along with Cashfree Payments. If you are stuck somewhere, we are here more than happy to help you!
Start your journey with RiskShield for Payouts now.
