What Is Fraud? How Is Fraud Control Done?

Fraud, which essentially carries the meaning of forgery or deception, is a term that generally causes financial and reputational losses, can be subject to legal investigation, and emerges with different types in almost every sector. Within the scope of payment systems, fraud is making an unfair gain by performing transactions at any merchant or ATM with a credit or bank card belonging to others, thus harming the real cardholder, merchant or bank. Fraud crime is a serious crime with legal consequences and is considered an action that threatens the security of society. Laws take various measures to combat fraud and bring criminals to justice. These transactions carried out by fraudulent persons can be performed in a physical or virtual environment.

• Forgery and fraud
• Fraud features
• Types of fraud

Frauds Performed in Physical Environment

Transactions in this category are performed by reading the information on the magnetic stripe or chip of the card using POS or ATM, or by using the contactless feature. In frauds performed in physical environment, the card and the fraudster are physically at the merchant. Such frauds are performed from the magnetic stripe and without a password through lost, stolen or copied cards. The shopping stores where fraud is most common are jewelers, stores selling mobile phones and TL loading, electrical/electronics stores, supermarkets and gas stations, and ATMs. After chip and password transactions, card present frauds have significantly decreased, but cash withdrawal transactions made with counterfeit cards at ATMs within this category of frauds have visibly increased. The most accurate method to prevent such frauds is for the transaction to be made from the chip reader with password entry. In chipless cards, fraud is prevented by checking the physical security features and signature of the card. In suspicious situations, the bank should definitely be called and necessary checks should be made.

Frauds Performed in Virtual Environment

In frauds performed in virtual environment, the card and the fraudster are not physically at the merchant. The transaction is performed by entering the sensitive card data into the POS device by the merchant, or by the fraudster going to the payment page on the website. With developing and spreading technology, CNP fraud is also performed by scanning QR Code on the payment page. The sectors where fraud is most common are; application download stores, ticket selling websites and airlines, GSM pages, websites selling electronic products, and vertical segment internet sites selling clothing and accessories. The most effective method in preventing CNP frauds is strong fraud prevention software and expert teams performing this activity. The software can work in-house as well as be applied by a professional company. In in-house software, the person who makes the software must also have fraud prevention capability. The products of companies that offer professional fraud prevention services may be more expensive than in-house software. However, due to their continuous renewal, they have more functionality in terms of fraud detection rates. Professional fraud prevention programs preferred especially by banks and large-scale commercial companies are state-of-the-art applications with rule-based and advanced filtering systems.

Preventing Fraud

If you have detected signs that an order is fraudulent, it may be possible to catch it. One of the most well-known frauds includes risky response codes that banks return to transactions, hundreds of checks that integrate these codes with orders and unique values that make up the order, such as the number of cards used, IP, time information, card usage rate, name information, product information, delivery address, registered email and extensions. Companies that offer professional fraud prevention services apply multi-faceted and modern filters that catch fraud in addition to these default filters. In this direction, another important issue is the professional monitoring team that will decide whether the transactions you have dropped into the gray area for manual control are fraud or not, no matter how strong your software is. If you do not have such a team, no matter how strong your software is and how many fraud cases it catches, you may make wrong decisions in gray area control and face fraud. Fraud control has advantages. Another one of these is the protection of brand and reputation. When a fraud attack occurs, it is possible for the brand to be damaged in addition to financial loss. In this direction, with the standard rates determined by organizations such as Visa, Mastercard, American Express, if a "fraud" and "chargeback" volume is reached and this volume shows continuity, the merchant is processed by the relevant organizations. In the light of these standards, the merchant's monthly fraud transaction, fraud transaction amount and reported total amount can be equalized to the monthly total turnover. At the same time, the number of chargeback transactions encountered on a monthly basis, chargeback transaction amount and the ratio of reported total chargeback amount to monthly total turnover should also remain below the determined standard levels.

Fraud Volume Calculation

Fraud calculation for a merchant or bank is done as: (total fraud / total turnover) x10,000. This is called the basis point. For example, if your fraud transaction balance for a monthly period is 100 TL and your turnover is 100,000 TL, your basis point can be calculated as (100/100,000) x 10,000 = 10. The maximum fraud standard for a merchant and bank equals 4 basis points. While this rate is approximately 8 basis points in the European region, it is 11 basis points worldwide. In the Turkey average, although it varies from bank to bank, it is recorded as approximately 2 basis points on average. While fraud ratios vary by sector, they can reach up to 8% in risky categories, for example in a merchant selling airline tickets. In such cases, institutions such as Visa, MasterCard, AMEX enter risk monitoring programs, and notifications about the merchant are sent to Acquirer banks and they act according to their levels. The occurrence of $3.5 billion in losses in e-commerce companies in just the USA and Canada in 2012 revealed how important it is to detect and prevent fraud at its source.

Fraud Prevention Program

Fraud prevention program is software or a system designed to detect and prevent fraud and forgery. Using this program can protect you from potential fraud and forgery and save you from various damages. First, install the fraud prevention program on your computer or network, then make sure the program meets the requirements and configure it correctly to secure yourself. This program analyzes information from different data sources. Therefore, before using the program, you may need to integrate your existing databases or systems with the program. With this customizable program, the settings and parameters of the program need to be configured to determine fraud indicators. This helps you determine how algorithms and analysis methods will work. After activating the program, carefully monitor the system. Regularly analyze the program to detect fraud signs or abnormal activities. Review the outputs and reports to identify potential fraud cases. The program can work automatically for certain situations. For example, when a suspicious transaction is detected, the program can automatically issue a warning or directly suspend the transaction. Define these situations in advance and assign the program accordingly. Finally, keep your program up to date. This way, you ensure that the program works properly and increase the effectiveness of the program.

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