Artificial intelligence is successfully helping online merchants to prevent fraud in payment transactions and create consumer satisfaction.
Most merchants understand that having a seamless, online payment processing platform is a crucial part of running a business in today’s marketplace. In 2021, more than four in five Americans used some form of digital payment and that number is rising. However, along with the rise of digital payments comes an increase in payments fraud, which can cost e-commerce businesses a significant amount of money.
How big is the fraud problem? In 2020, merchants lost $17 billion to e-commerce fraud, and that number is expected to exceed $25 billion in just three years, according to Juniper Research.
So what’s the solution? Payment processing providers, such as Vendo, increasingly use artificial intelligence (AI) to help detect and prevent fraud even before it happens.
How does AI work?
AI systems essentially digest large chunks of information in vastly shorter amounts of time than it would take human minds to do the same thing. Through machine learning, AI systems can be trained to look for specific kinds of data and patterns. Each AI program is trained to analyze and search for patterns that provides whomever is using it with information that can be used to glean information in hundreds of different ways.
For payment processing platforms, one of the most useful functions of AI technology is to solidify security and prevent fraud. Online checkouts and transactions would be seriously affected if payment processors/platforms had to manually verify every online transaction. With machine learning, AI can identify any abnormalities or suspicious activity in a large data set, faster and more efficiently, saving companies time and money in labor.
Because of its sophisticated ability to analyze for specific patterns, it can also reveal important insights that can help companies be better prepared to identify and fight fraud, among other functions.
How is AI used to detect fraud?
Through a series of sophisticated and customized data analytics, payment processing companies can tailor their AI software to look for signs of fraud, including flagging likely fraudulent activities, detecting cyberattacks and bot “takeovers,” and identifying false declines.
Because AI can be trained and programmed uniquely, every merchant’s process may look slightly different. For example, at Vendo, the Fraud Identification System (FIS) is used to analyze and identify specific information or problems during the processing of each transaction. The FIS system:
- Gathers the order details from the merchant
- Links every order to other orders in the database
- Analyzes hundreds of variables in each transaction using machine-learning models
- Evaluates each order and either approves, declines, or asks for further information or provides an alternate payment method
- Reviews each transaction for accuracy and or anomalies
Customizing data points creates intelligence rules
Companies can build their AI according to whichever data points will help them understand if a transaction is likely to be fraudulent, flagging suspicious transactions for review. This allows merchants to create “intelligence rules” that can identify perpetrators of fraud, without requiring a live staff member to review them first.
An AI-driven fraud identification system also can help to address an overactive tendency to decline any remotely suspicious transaction, thus losing money from consumers who were not actually engaging in fraud. The fraud identification system contains an algorithm designed to understand every step of the payment cycle and system. The algorithm can include data points such as: location, email, average ticket size, card data, shopping cart products, etc.
For example, the Vendo fraud identification system continuously evolves and learns from the data it receives and analyzes. The models used to detect fraud change on a weekly basis, using a rolling window of the most recent six months of data to address everchanging fraud patterns. Years of this ongoing learning gained from analyzing over 8.2 million transactions has given Vendo insight into which features are necessary to detect fraud.
By combining machine learning and other AI-driven data functions into the payment processing system, authorized transactions (that would otherwise have been attributed to fraud) can be increased. Additionally, AI can be useful in helping payment processing platforms to support the growth of new merchants through adaptive standards that learn new information through every transaction.
How does AI protect consumers against fraud?
AI can help ensure customer satisfaction by protecting consumers against fraud linked to financial or identity data theft from an institution where they used their credit card, a bank, or other payment method to pay online.
Choosing a Payment Processor/Platform with Robust AI Capabilities
Making the payments process as seamless as possible for consumers is just as important as protecting against fraud. AI has the ability to do this by performing its many steps quickly and efficiently without the consumer even realizing it. Therefore, it’s crucial to choose a payment processor/platform that has robust AI capabilities, particularly those that can grow and adapt quickly as the industry likely will.
Additionally, even if a merchant has not yet experienced fraud or related cybercrimes, it is probably only a matter of time. E-commerce fraud costs the industry more than $21 billion every year, $15 billion of which is related to fear of fraud; in other words, merchants lose money when transactions with any suspicious activity are denied, even those that ultimately are deemed not fraudulent.
The bottom line
While AI technology is still relatively new to the payment processing arena, it already has shown itself to play a significant role in successfully mitigating fraud and creating consumer satisfaction. From a business perspective, it can reduce the time it takes to identify fraudulent charges or cyber criminals, analyze, and interpret large data sets at record speed, and even support regulatory compliance with the added benefit of a reduction in human error.
Contact us if you are interested in reducing fraud in your online business.
Vendo offers comprehensive payment processing services to high risk industries, including content platforms, cam operators, and e-commerce sites. Our innovative, AI-powered tools offer merchants simple, secure, and seamless payment solutions, along with expert customer support from integration to end-user concerns. Our expert team works 24/7 to shape your vision into reality.