Payment Security and Transparency: Friends or Enemies?
- All, Insights
With the development of digital payments, payment fraud is also growing. Payment fraud poses a serious threat to businesses because it allows attackers to use stolen or fake payment information to steal user funds. According to a recent Ravelin report, 75% of companies confirm that fraud affects their business. Additionally, for over 27% of organizations, fraud costs more than $15 million every year.
Growing cyber threats and the risk of data leakage increase the value of payment security and transparency. Today, businesses and customers are more than ever interested in ensuring that payment transactions are reliably protected and take place under the most transparent conditions.
Payment security as a crucial condition for business operations
One in every five global consumers fell victim to payment fraud in the last four years. Therefore, it is not surprising that payment security is the main attribute that brings value to customers.
Businesses are also highly interested in secure payments because they lose much more than just money in the event of data leakage. The reputation and business existence are called into question for companies that fail to ensure the security of monetary transactions.
Having experienced money loss once, customers will unlikely trust the company again. They will most probably try to use the services of your competitors. And if they like them, the chances are very small that they will ever return to you again.
History knows many cases of fraud and data leaks. And they don’t just happen to startups or inexperienced companies. Large enterprises and established banks are also subject to hacker attacks and, unfortunately, cannot always successfully resist them.
Notable cases of massive payment data leaks include:
- Equifax data breach, which affected 147 million customers. The company was fined $700 million for failing to provide payments security.
- Capital One data breach, which affected 100 million credit card applications. The company faced an $80 million fine and resolved customer lawsuits amounting to $190 million.
- Desjardins data breach, which affected 4.2 million customers. The court has officially approved a $200.9 million settlement against Desjardins for the significant data breach.
The supporting role of payment transparency
Payment transparency provides clear and understandable information regarding what fees and participants are involved in a given payment transaction.
In terms of importance for customers, payment transparency comes after payment security. Despite that, it is one of the decisive factors for customers when it comes to payment service selection.
Baymard Institute found that about 48% of consumers quit online shopping due to high extra costs. Unfortunately, those costs are hidden, like tax or transaction fees, so they emerge as unexpected surprises.
However, payment transparency greatly increases customer trust and the likelihood of completing a transaction.
As a business, you need to be honest with your customers about the true cost of a transaction. Before the user hits the pay button, they must clearly understand how much money will be withdrawn from their account and the purpose of the withdrawal.
As a client of a payment service provider (PSP), you should ask your vendor to provide detailed information about the financial transaction. Learn how the platform processes payments and what digital payment technology is involved. Ask how fees depend on the volume, type, and speed of transactions and how secure payment processing is established.
Once you understand all the pricing components and know the final price of the transaction, you can choose a PSP that provides the most transparent payment system.
Emerging challenges to payment security and clients' confidence
Although businesses understand the importance of secure and transparent transactions, ensuring payment security becomes increasingly challenging in the modern technological world. The rise of fintech has two sides to the coin. On the one hand, businesses and customers receive endless opportunities to make convenient, fast, and hassle-free transactions. On the other hand, they face new types of security threats and must take advanced measures to develop secure payment systems.
Currently, we witness three emerging challenges that complicate businesses’ efforts to establish secure payment:
Rise of generative AI: Secure payment solutions often use multi-factor authentication (MFA) to confirm a transaction. One element of MFA is the entry of biometric data, such as a selfie or voice input.
Generative AI is actively used by fraudsters to carry out transactions without the knowledge of the real card owner. The latest AI models can imitate voices based on real audio recordings or create images based on user photos. There are also technologies that not only create images but also make “masks” out of them. These masks can then be applied over the face of a person using the phone’s camera. This way, a fraudster can impersonate another person and execute a transaction using a stolen card.
Generative AI also enables authorized push payments (APP), which are more challenging to detect and reverse than other fraudulent transactions. Common scenarios include:
- Making payments on fake invoices.
- Investing in fake projects.
- Receiving fraudulent instructions from a supposed executive to make a payment.
Complex fintech ecosystem: Today, financial and payment systems are not limited to traditional financial institutions. Many fintech companies are involved in the process, and many technologies are used to process transactions. The presence of a large number of parties involved makes it challenging to ensure payment security. It requires businesses to be extremely careful in selecting PSPs and to conduct thorough research to ensure they have effectively secured payment.
Another challenge to consider is the active development of open banking. PSD2 obliges EU banks to share customer data (at customer consent) with fintech companies. The primary purpose of this is to streamline financial services and promote financial inclusion. However, the availability of sensitive data complicates payment processing security and requires sophisticated measures to safeguard transactions.
Compliance with sanction regulations: Know Your Customer (KYC) and Anti Money Laundering (AML) procedures are increasingly used by organizations to ensure the legitimacy and trustworthiness of a potential customer or partner. Among other things, KYC and AML check whether the person is on the sanctions lists and whether they are a politically exposed person (PEP).
Since the beginning of the war in Ukraine, the number of sanctioned companies and people has increased sharply. In addition, different entities are subject to different levels of sanctions. This situation significantly complicates KYC AML procedures and negatively affects transaction processing. False-positive and false-negative results of sanctions screening appear occasionally and jeopardize secure online payment.
Leveraging payment technologies to balance trust and innovation
Secure and transparent transactions are a priority for businesses that value their time, money, and reputation. However, in an environment where the financial system becomes increasingly complex and interconnected, businesses face challenges in establishing secure payments.
A large number of transaction participants increase fees and the duration of payment processing. Additionally, open access to banking data poses the risk of fraud, and with the advent of generative AI, hacker attacks have become more sophisticated.
Despite this, modern payment technologies can run transparent transactions that are hardly accessible to cybercriminals. Businesses must understand these technologies and use them efficiently. Additionally, they should be an integral part of corporate security strategy based on security awareness and education.
The latest advancements that enable payment security and transparency are:
1. Blockchain technology
Blockchain is often identified with cryptocurrencies, but its use is much broader, especially in payment transactions. Blockchain’s decentralized nature allows for conducting payments without intermediaries. This makes monetary operations fully transparent and easily trackable. Additionally, transaction fees are lower than traditional payment processing since they don’t include go-betweens.
2. Payment tokenization
The most reliable way to protect important information is not to know the information. Payment tokenization works precisely on this principle. It replaces payment data with a set of randomly generated characters. Parties involved in secure payment processing work with a token and cannot access real payment data. Thus, even if an attacker gains access to the token, they will not be able to use it for malicious purposes.
3. Contactless payment technology
In contactless payments through near-field communication (NFC) technology, a unique code is used for each transaction. This code cannot be reused for other operations, which significantly complicates attempts to hack payment data. Also, the requirement to be in close proximity to the payment terminal and to confirm the transaction using MFA makes fraud nearly impossible. The only realistic way to carry out a fraudulent transaction is to physically take possession of the user’s phone and falsify its biometric data.
4. Artificial intelligence
We have discussed how AI can be used for malicious purposes, but its ability to enhance payment security is far more impactful. Modern AI algorithms do not rely on simple “if-then” rules. They can identify non-obvious signs of fraud that may not be apparent to a human reviewer. Using AI, PSPs can block suspicious transactions in time and conduct further investigations. If fraudulent activity is detected, the money is not sent, and the user is notified.
How to benefit from instant, transparent, and secure payments with the DCM Platform
DCM is a modern fintech platform that uses emerging technologies for transparent and secure payment processing. Our goal is to build a bridge between traditional and digital finance. We are confident that this can be achieved by providing businesses with a secure and transparent platform for conducting all types of payment transactions.
We know that business owners have a lot on their plates, so we build collaboration on the most transparent and favorable conditions. Depending on the client’s needs, we create a tailored proposal that clearly defines transaction costs, processing time, and security technologies involved.
By partnering with us, you can be confident that you will not incur unexpected costs or face customer disappointment. At DCM, we undertake all obligations for organizing online payments, including infrastructure, security, and fault tolerance.
Do you want to integrate secure and transparent online payments? Contact us, and let us supercharge your business with the hi-tech payment platform.
info@dcm.systems
20 Wenlock Road,