Fraud trends in payments are evolving. Not all types of fraud are the same, and some require merchants to get creative with their prevention efforts.
In a recent research study conducted by Verifi, several key fraud trends were reported by a global sample of merchants.
One trend that was of particular interest was with the most common types of fraud attacks experienced. According to the 1072 merchants surveyed, the top 4 types of fraud attacks has remained consistent since 2021.
Top Fraud Attacks
| 2021 | 2022 | 2023 | |
| Phishing/pharming/whaling | 3 | 1 | 1 |
| First-party misuse | 1 | 4 | 2 |
| Card testing | 2 | 2 | 3 |
| Identity theft | 4 | 3 | 4 |
One of the most challenging types of fraud, first-party misuse (aka friendly fraud), has been a particularly popular subject in 2023. Friendly fraud occurs when legitimate customers dispute legitimate online purchases with their issuing banks or credit card companies. An increase in card-not-present transactions fueled by the pandemic, quickly led to an increase in disputes that appeared to be friendly fraud. In recognition of this rising form of opportunistic fraud, Visa released an update to its compelling evidence requirements—referred to as CE3.0—to help merchants better protect themselves against invalid fraud disputes.
According to Verifi’s 2023 Payments and Fraud Report, friendly fraud was represented most prominently among enterprises in the Europe and North America regions. Overall, 62% of merchants reported an increase in friendly fraud over the last two years.
Most Common Reasons for First-Party Misuse
Verifi’s 2023 report highlights the most common drivers leading to increased instances of friendly fraud.
Friendly fraud represents itself differently in every business. According to Verifi’s research report, most common drivers were attempting to obtain free goods, transaction confusion, and family fraud.
It’s important to note the reasons why merchants are reporting higher instances of friendly fraud, with the following being the most common:
• Inflation/ higher prices
• Increase in e-commerce/ demand
• Changes to cardholder protections on accepted payment cards
These merchant-reported responses highlight macroeconomic factors and shifts in payment preferences as reasons for increased instances of friendly fraud.
Merchant Perspective on Card Brand Updates
Visa’s CE3.0 update began in April 2023. With this update, merchants now have the ability to challenge the legitimacy of fraud disputes with a response code of 10.4 – Other Fraud: Card-Absent Environment if they can prove (1) a prior transactional relationship exists, and (2) certain transaction data elements match across the transaction being disputed and the prior undisputed transactions.
Merchants in the Verifi 2023 Payments and Fraud report were asked a series of questions about card brand compelling evidence updates. Nearly three quarters of respondents were aware of the updates, and the majority (89%) were optimistic that the updates would help reduce the problem of friendly fraud.
Fraud is changing. Merchants can stay on top of the latest trends by reading through Verifi’s free 2023 Payments and Fraud Report, here.
