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Payment Fraud Protection: Emerging Tools and Innovations

Payment Fraud Protection

Fraudsters Never Quit. Here’s How Merchants Can Stop Them.

Consumers are embracing innovations in payments technology, and their shift from in-person to online transactions has come with a sharpened focus on the security of their payments and personal data.

From digital wallets and contactless payments to real-time payments and buy now, pay later services, consumers have ample new payment options to choose from. This technology also gives merchants unprecedented flexibility in managing their business operations and customer experience—and it presents new opportunities for fraudsters.

Globally, merchant losses to online payment fraud are expected to reach $343 billion between 2023 and 2027,¹ and with the implementation of multifactor authentication requirements like strong customer authentication (SCA) in the European Union, fraud protection is top-of-mind. Shoppers notice what merchants are (and are not) doing to protect their information. This presents an opportunity for merchants. By securing their payments systems with a solid fraud protection strategy and communicating their commitment to protecting personal financial information, merchants can simultaneously keep customers’ data safe and delight them with a seamless payment experience.

In this rapidly changing landscape, merchants hold the unique position of being able to protect consumers from fraud and, when done right, make fraud prevention a competitive advantage that helps differentiate them from the competition and generate revenue.

Consumer merchant fraud infographic



4 core fraud prevention tools to use now

Proven fraud protection tools continue to deliver high value. Using them effectively is key to a merchant’s success. Whether just starting a business or assessing a current fraud prevention strategy, these are the standards that all merchants should meet.

1. Card verification

An easy-to-implement first step, card verification confirms a shopper’s identity and the legitimacy of the purchase. Verification can be in the form of the three-digit verification number on the back of the card, requiring a signature or PIN, using an address verification service, or using a 3D Secure (3DS) like Discover® ProtectBuy®, which enables real-time validation of a consumer’s identity before processing a payment.


2. Tokenization

Tokenization replaces a customer’s primary account number (PAN) with a unique replacement code called a token. That token is the only data stored on the merchant’s network—the card data itself is stored on a high-security server. Tokenization can be used for in-store and online payments.


3. EMV chip cards

Chip card technology (also called EMV) is the current standard for payments. EMV chip cards are more secure than magnetic stripe cards because they contain an integrated circuit chip that encodes every transaction differently. If a criminal tries to intercept data from a chip card transaction, that data cannot be used again to make another purchase.


4. Fraud risk analytics

Data analysis tools examine enormous amounts of data and identify deviations from normal behaviors and patterns. This might be data about past customer orders, website behavior, and geodata. The latest fraud risk analysis tools send additional customer data to issuers in the authorization message during card-not-present (CNP) transactions, which issuers approve or decline in real time. No new customer data needs to be collected during checkout.

Biometric payment



3 emerging fraud prevention tools merchants should consider

The same technologies that are poised to transform the ways people live, work, and play are also advancing fraud protection. A recent study by Cybersource found that two in three merchants believe advanced fraud prevention technologies will have a highly transformative impact on their business over the next three years.6


1. Biometric indicators

Now mainstream in multiple aspects of consumers’ lives—from cell phones to cars to computers—biometrics like facial recognition technology and fingerprint authentication are just beginning to be used for payment authentication.


2. Secure remote commerce (SRC)

Also known as “Click to Pay,” SRC minimizes merchants’ dependence on consumers entering sensitive data because shoppers save their card information securely and use it across eCommerce sites. Merchants can license the Click to Pay icon from EMVco to create a simple, streamlined and secure online checkout experience.


 3. Machine learning and AI

Machine-learning-based fraud detection tools learn and improve as they take in new information. They run on a collection of artificial intelligence (AI) algorithms trained with historical data to suggest risk rules. The rules can be set to allow or block certain user actions, including fraudulent transactions.


The role of open banking in fraud protection

Globally, about 24 million people use open banking, which allows customers to network their accounts and data across institutions.7 Open banking makes it easier for consumers to access credit and manage money seamlessly. It is also the mechanism behind financial apps that connect to consumers’ financial data to provide services like mortgage lending, stock trading, bill pay and buy now, pay later transactions.

Some aspects of open banking aid in fraud prevention. It requires strong customer authentication, like biometrics and two-factor authentication, and it does not require customers to share sensitive data during payments. But because open banking shares more data between third-party companies and financial institutions, it adds potential points of failure where thieves could steal customer data.

Merchants who are thinking about using open banking should make sure they are using the full range of fraud prevention tools available to protect themselves and their customers.


Steps small and mid-sized businesses can take to fight fraud

All businesses are susceptible to fraud, but merchants who are small business owners may feel the impact more directly. The reason for this is that the smaller a business’s size, the greater the proportion of the loss due to fraud.

While small businesses may not have access to all of the fraud prevention tools large enterprise corporations use, there are actions they can take to fight fraud effectively:

  • Enroll in fraud alerts offered by financial partners.
  • Train employees to identify and report fraud.
  • Divide accounting tasks between more than one employee to create an internal check.
  • Use online banking to monitor all accounts regularly.
  • Maintain a secure website with software that detects security gaps and cyberattacks.
  • Physically inspect point-of-sale systems and use passwords and CVV2 and CVC2 codes for protection.
  • Use enhanced decisioning to protect card-not-present (CNP) transactions.

Man and woman on phone and laptop


The fast-moving nature of payments innovation paired with consumers’ rapid adoption of emerging digital technologies is transforming the fraud prevention landscape. Online and in-store, customers are looking for cues that their information is protected when they make a purchase. To win customers’ trust and protect revenue, merchants should remain vigilant and equip themselves with the right tools. Reach out to your acquirer to find out what actions you can take today.

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  1. Juniper Research, July 2022, “Online Payment Fraud: Market Forecasts, Emerging Threats & Segment Analysis 2022-2027.”
  2., November 2021. “Report: Merchants Fight Data Breaches, Payments Fraud with Employee Education, Cybersecurity Insurance.” Viewed 7th July 2023.
  3. Discover Global Network, June 2023, “Transforming Transactions: How the Fintech Landscape is Developing Across the Globe.” Viewed 7th July 2023.
  4. 451 Research, part of S&P Global Market Intelligence, Key Findings: Global Merchant & Consumer Payments Survey: Commissioned by Discover Global Network, completed November 2021
  5. 451 Research, July 2022, “Merchants Look to Optimize Payments and Fraud Prevention for Improved Business Outcomes, 451 Research.”
  6. Cybersource, 2022, “Global fraud and payments report 2022.” Viewed 7th July 2023.
  7. Statista, May 17, 2023. “Number of open banking users worldwide in 2020 with forecasts from 2021 to 2024, by region.” Viewed 10th July 2023.


The information provided herein is sponsored by Discover® Global Network. It is intended for informational purposes, and is not intended as a substitute for professional advice.