For businesses, fraud protection is more difficult than it’s ever been. Global e-commerce losses to online payment fraud alone were estimated at $41 billion USD in 2022, more than double the estimated losses for 2021. Modern fraud protection encompasses a wide range of mechanisms and strategies, each of which is constantly evolving to keep pace with emerging threats. The fraud protection services industry helps businesses combat these risks, with specialised solutions designed to help businesses detect, prevent, and respond to fraudulent activities and security issues.

Below, we’ll explain how fraud protection services work, what types of fraud they protect against, and the components of these services. Here’s what businesses need to know.

What’s in this article?

• Types of fraud businesses need to know about
  
• How fraud protection services work
  
• Key components of fraud protection services
  

Types of fraud businesses need to know about

Different business types have unique security considerations, but here are some of the most common fraud types facing businesses today.

• Identity theft: This type involves wrongful acquisition and use of another individual’s personal data, typically for economic gain. It can be especially damaging if the identity of a company’s employee or customer is stolen.

• Payment fraud: This type includes any fraudulent or illegal transaction executed by a fraudulent actor. It can involve credit card fraud, where stolen card information is used to make unauthorised purchases or transactions.

• Phishing and spear phishing: This involves fraudulent communications that appear to come from a reputable source, usually via email, with the goal of stealing sensitive data such as credit card numbers or login information. Spear phishing is more targeted and typically aimed at specific individuals or companies.

• Invoice and billing fraud: This type involves the use of fake or altered invoices to siphon money from a company. It can be carried out by external third parties or internally by employees.

• Payroll fraud: This type of fraud is committed by manipulating payroll systems to embezzle funds, typically by adding ghost employees or falsifying overtime claims.

• Return fraud: With this type, fraudulent actors return stolen merchandise for profit or return items that have been used or worn in violation of the retailer’s return policies.

• Intellectual property fraud: This type involves the theft or misuse of a company’s intellectual property (i.e., patents, trademarks, copyrights, trade secrets). It can be particularly harmful in industries where innovation is a key competitive advantage.

• Insider fraud: With this type, fraud is committed by employees, managers, officers, or owners of the company. It might include embezzling funds, selling confidential information, or abusing authority for personal gain.

How fraud protection services work

Fraud protection services are specialised solutions that help businesses detect, prevent, and respond to fraudulent activities and security threats. These service providers can operate as stand-alone companies or as part of broader offerings from larger security firms or financial service providers. If they function as stand-alone providers, they often specialise in specific sectors – such as e-commerce, banking, or healthcare – and offer custom solutions that address the challenges and regulatory requirements of each industry. Examples of fraud protection services offered by larger companies might include a fraud protection branch of a larger cybersecurity company or fraud protection tools integrated into banking platforms or payment processors.

Many providers of fraud protection services have consultative and managed services, where they provide protection services and help manage implementation, monitoring, and response processes. This can be especially valuable for businesses that lack the in-house expertise to effectively combat fraud.

Key components of fraud protection services

Here’s an overview of what fraud protection services typically include.

• Transaction monitoring: With this service, providers perform continuous monitoring of transaction data in real time to identify patterns or activities that might indicate fraudulent behaviour. Any suspicious transactions are flagged for further review.

• Authentication methods: Methods such as two-factor authentication, biometrics (e.g., fingerprints, facial recognition), and strong password policies are used to verify the identity of users and reduce unauthorised access.

• Encryption and data protection: Providers protect and encrypt sensitive data, such as customer information and payment details, in transit and at rest. This reduces the risk of data breaches and exposure.

• Risk assessment software: Providers might use software that assesses the potential risks associated with transactions or business relationships. This helps companies make informed decisions about their security protocols and customer interactions.

• Anti-malware and antivirus protection: These tools defend against malware, ransomware, and other malicious software that can be used to commit fraud or steal sensitive information.

• Compliance management: These features manage and monitor compliance with industry regulations such as the Payment Card Industry Data Security Standard (PCI DSS) for payment card security or the EU’s General Data Protection Regulation (GDPR) for data protection.

• Employee training programmes: These programmes educate employees about the risks of fraud and the signs of fraudulent activities; they often include training modules and simulations.

• Forensic and investigation services: Investigative services analyse how a breach occurred, identify the perpetrators, and recommend measures to prevent future incidents.