Among the most common forms of fraudulent payments are check and ACH payments. Moreover, treasury executives are stepping up their efforts to curb these fraudulent activities. But the most vulnerable payment types are still check and ACH payments, which are the least secure among the four main types of payments. Fraudsters are becoming more sophisticated and are not likely to slow down any time soon. So what are the biggest risks in an electronic payment system?
Identity theft
The use of electronic payment systems is fraught with risk, with identity theft posing a particularly significant one. Millions of people have accounts with sensitive personal information, and these accounts can be used by identity thieves to commit fraud. The loss of identity and money from this crime is estimated at 50 billion dollars annually. Identity theft is not just a financial concern, but can lead to a range of negative psychological and physical consequences.
Every company faces attempts to steal sensitive information, including financial information, intellectual property, and classified information. Major brands are no exception, and their security systems are often not up to par. According to the FBI’s 2021 Cost of a Data Breach Report, there were 847,376 cyber-crime complaints received by law enforcement agencies in 2021, up seven percent from 2020. In addition, the FTC Consumer Sentinel Network received 5.7 million reports from consumers reporting fraud and identity theft.
Fraud
When businesses use electronic payment systems, they expose themselves to a high risk of fraud. Fraud is a very common occurrence, with over 63% of businesses suffering a loss through online payment channels. The main target of fraudulent activity is small, less secure businesses. In order to avoid such losses, businesses need to implement proper fraud prevention measures and monitor payment patterns to identify potential fraudsters.
While check fraud has decreased slightly from the previous year, it still remains a very high risk. Wire fraud is rising rapidly, thanks to social engineering and computer-intrusion techniques. Most organizations contain fraud in its early stages. Almost ninety-two percent of survey respondents noted that payments fraud costs less than 0.5 percent of their total revenue. However, even if the losses are not large, fraudulent acts can attract regulatory attention and result in fines and other legal action.
Costs
The electronic payment system allows consumers to make payments with credit cards and mobile phones. While the costs of transaction fees are lower with electronic payments, there are also risks involved. For example, unauthorized charges can result in a claim with the credit card company or bank. And without sufficient information, it is often difficult to identify the person who made the charge. As a result, the security of e-payment systems requires additional costs to implement payment-security technologies.
Another cost is merchant interchange fees. These fees are a percentage of each sale that the merchant incurs through the electronic payment system. They depend on the type of transaction and pricing models used by the payment processor. While a small percentage of the population carries cash in their wallets, the majority of buyers opt for credit card payments. Therefore, the business accepting credit card payments is charged a small fee per transaction. This fee is usually lower for credit cards than for debit transactions.
Data security
Data breaches are one of the biggest concerns in the world of online commerce. They have increased in frequency and size in recent years and are costly to both customers and merchants alike. As a result, many governments have enacted stricter data privacy regulations. For example, California, the EU, and Australia have all passed legislation to protect consumers’ privacy. Additionally, new standards are being introduced to protect the security of information and money transmitted over the internet, such as the PCI/DSS. In addition to these new requirements, hackers and cybercriminals are increasingly targeting organizations with sensitive data and compromising sensitive information.
While many companies strive to protect sensitive data, many companies are unable to secure their systems. For example, a major breach of biometric data could cripple the DFS system. The more data an attacker can access, the greater the damage they can cause. Furthermore, cyberwar doctrines rely on exploiting the weakness of their adversary’s digital security. To prevent such attacks, organizations must implement data security measures that will prevent hackers from stealing sensitive data.