How Can Your Business Protect Itself from Credit Card Application Fraud

The security of your customers’ financial data may be the key to your long-term success. Are you the administrator of a company operating nationally or internationally? In this case, the reputation and, therefore, the profitability of your services will be closely linked to the effectiveness of the measures taken to prevent credit card application fraud. Unfortunately, we live in times where the likelihood of facing online fraud is higher than ever. And this, if you are a business owner, could have a devastating effect on your credibility. Do you want to prevent unpleasant situations, protect confidential user data, and mitigate financial losses? Then, the use of card fraud detection software will be necessary.

Credit card fraud detection applications use complex algorithms to verify the identity of the people behind the payment request. Should a transaction be suspicious, then the software used may flag the payment for later human review or cancel it entirely based on the rules and parameters set by your company. Accepting the payment of a stolen card could not only affect users’ trust in your services, but it is also a red flag that could put your company in the crosshairs of government organizations.

Credit card application fraud is increasingly common in the United States. And the AI revolution has made fraudsters’ methods to extract confidential user data unprecedentedly complex. If, in the past, card cloning was the primary method by which credit card information was stolen, today, social engineering and phishing are the primary means by which bad actors access credit card information. From utilizing your card on a fake website to installing an unsigned app on your mobile device, the ways hackers can access financial information are diverse. As a result, installing card fraud detection systems has become a business necessity for most companies.

Why Is It Crucial to Prevent Credit Card Fraud?

Over 44% of U.S. cardholders reported fraudulent transactions on their accounts in 2022. Credit card fraud is widespread, regardless of economic factors, and can devastate the finances of individuals and businesses that fall prey to fraudsters’ attempts. Why should you take all possible measures to detect credit card application fraud? Financial losses. If a fraudulent transaction gets past the security systems implemented by a company, the total costs incurred can sometimes become the firm’s responsibility. In addition, a fraudulent transaction is a realistic basis for a bank chargeback, which comes with a suite of business complications.

Card fraud detection systems are also necessary to protect customers’ confidence in your brand. Your clients expect their financial data to be safe and fraudster transactions deterred with modern software solutions. Suppose your company’s security measures do not prevent the successful use of stolen credit card information. In that case, user confidence in your brand will decrease, which could devastate your finances in the long run.

We also need to mention legal regulations. Are you a financial services company? Does your firm’s business fall under the jurisdiction of the FRB and FDIC? Then, you may well be liable if your systems are tapped via stolen bank information. If your internal systems do not detect the bank information used by fraudsters in time, you could become liable for the transactions and incur penalties. These penalties can range from a few hundred dollars to tens of thousands, well over the amount lost by the customer.

How Does It Work?

Let’s say you’re an airline, and you’ve just received a customer request for a $5,000 transaction. In just a few milliseconds, the card fraud detection tool used by your collaborator will collect essential data, such as the name of the cardholder, a timestamp of the transaction, the location, and the IP used, as well as make a comparison of this transaction against others recorded on the card. The program you use will employ a rule-based detection system to give you a transaction risk score.

How the rule-based system works will depend on your field of activity and the total number of daily transactions recorded by the company. But there are some common elements. The application will analyze the customer’s geographical location and determine whether the IP address used corresponds to the other addresses from which transactions were carried out. Is the customer from Chicago, but the transaction is coming from Moscow? Then, that’s a red flag, and the operation should not go ahead. Another clue can be related to multiple transactions in a row or a large payment for an account that does not have such a history.

How Can AI Help?

The potential for errors is high when it comes to decisions that must be made in just a few milliseconds. Therefore, a professional credit card application fraud detector will use machine learning and neural networks to identify inconsistencies in the analyzed data. AI can perform real-time analysis of financial transactions, be deployed for additional post-transaction verification, and systematize the integration process of the fraud detection application with the other components of the online security apparatus used by your firm.

With artificial intelligence, the accuracy of online fraud detection programs is over 98%, a percentage that continues to improve with the adoption of better and more robust neural networks. AI-based fraud detection systems are continuously evolving, and the underlying tools they use to detect fraudsters are more complex with each algorithm update. From performing geographic analyses to employing comprehensive ML models, AI is a game changer for the fraud prevention industry. However, AI is also a welcome aid to fraudsters, who now possess more tools to test companies’ vigilance.

The Best Tool You Can Utilize

Credit card application fraud is an increasingly urgent issue for businesses operating globally. And this is due to the complexity of the methods used by fraudsters. From social engineering to phishing or spyware, bad actors, thanks to technological advances, have access to more and more tools to copy confidential financial data. Do you want your company to be protected against fraudulent transactions? Do you want the reputation of your brand to remain intact? Then, using card fraud detection tools may be one of your best ideas.

Through machine learning, neural networks, and complex anomaly detection algorithms, fraud detection software can prevent fraudulent transactions before they can affect you financially and reputationally. Moreover, their use can be a requirement in your field of activity. Credit fraud detection tools focus on electronic payments, use real-time financial data monitoring, are based on complex algorithms that analyze behavioral patterns, and have a significantly higher success rate than human security experts. Fraud detection applications are a must-have for serious companies. And their use has become synonymous with professionalism.