What Is Payment Fraud and What Types Are There?

Payment fraud now requires global attention and involves high stakes.

In a world of instant transactions, open banking and digital wallets, fraudsters are constantly inventing new ways to exploit vulnerabilities in the payment process. Businesses, financial institutions, and individuals alike must protect money, data, and trust. 

If you're asking, 'What is payment fraud?', you're already taking the first step towards protecting your assets.

This guide breaks down what payment fraud is, the main threats to expect in 2025, and how to keep your business protected.

Grab your coffee. This is about more than awareness  –  it is about survival.

What is payment fraud?

Payment fraud involves the unauthorised use of payment systems, such as credit cards, bank transfers or digital wallets, to illegally acquire funds. Criminals use tactics like phishing, malware, and social engineering to trick systems or people into releasing funds.

Unlike general cybercrime, payment fraud directly targets the movement of money and often requires sophisticated techniques such as phishing, malware injection or social engineering.

Fraud can occur at any stage of a transaction, from checkout forms and login credentials to back-end processing systems. Payment fraud affects both consumers and businesses, and has evolved into a multi-billion-dollar global issue.

Key characteristics:

• Involves deception or manipulation
• It targets electronic and card-based payments.
• Social engineering, malware, or stolen credentials often enable it.
• It evolves constantly with new technology and trends.

What are the most common types of payment fraud in 2025?

Fraud tactics have evolved in line with digital innovation. The most widespread forms in 2025 are:

Phishing and social engineering

Attackers trick users into sharing payment information by pretending to be trusted sources. Phishing emails, fake websites and smishing (SMS phishing) remain among the most common methods of attack.

Chargeback fraud (friendly fraud)

This occurs when a customer makes a purchase and then disputes the charge with their bank, falsely claiming that the purchase was unauthorised.

Account takeover (ATO):

Hackers gain access to user accounts, often through leaked credentials, and carry out unauthorised transactions before detection systems identify the activity.

Card testing fraud:

Bots or criminals use stolen card numbers to verify their validity by making small purchases. Once a card is verified, fraudsters use it for larger fraudulent transactions.

Synthetic identity fraud:

Criminals combine real and fake data (e.g., a real social security number with a fake name) to create a new "synthetic" identity, which they then use to apply for credit or open accounts.

Business Email Compromise (BEC):

Scammers impersonate company executives or vendors to trick employees into wiring money or disclosing payment details.

Fake invoices and merchant fraud:

Fraudsters submit fake invoices or set up fake businesses to extract payments from unsuspecting victims.

Real-time payment fraud

Fraud increases in speed as instant payment systems spread more widely. Real-time payment systems increase detection complexity, enabling fraudsters to escape more quickly.

The business impact of payment fraud

The consequences of payment fraud extend well beyond direct financial loss. It can disrupt operations, damage a brand's reputation and result in legal issues.

Key risks include:

• Revenue loss: Avoid direct theft through fraud or chargebacks.
• Higher processing costs: Fraud leads to increased transaction fees and stricter reserve requirements from payment processors.
• Compliance fines: Regulatory compliance strengthens organizational integrity and helps avoid steep penalties associated with GDPR, PSD2, and AML violations tied to fraud.
• Reputational damage: Maintain strong brand trust by preventing breaches.
• Operational strain: Fraud recovery and mitigation consume resources.

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“Every $1 lost to fraud costs U.S. merchants over $3.75 in total impact, including operational, reputational, and customer churn effects.”  –  LexisNexis Fraud Report

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What are the best ways to prevent payment fraud?

Prevention promotes continuous improvement. It means reducing your exposure and increasing your detection speed. Here are some core strategies:

Multi-factor authentication (MFA): 

This is especially important for account access and high-value transactions. Related read: What is Strong Customer Authentication (SCA)?

Tokenisation and encryption: 

Remove sensitive data from the transaction flow. Learn more in our guide: Accept online payments without a website.

AI and machine learning models: 

Spot abnormal behaviour in real time. AI-enhanced fraud detection tools now power solutions for everything from identity risk to chargeback automation.

Customer Behaviour Analytics: 

Analyse device fingerprints, geolocation and transaction patterns to detect anomalies before they become threats.

Employee Training:

Human error remains a major vulnerability. Businesses that train their staff can reduce the risk of social engineering by up to 60%.

Chargeback Management Systems: 

Automate evidence submission and dispute handling. Explore the difference between high-risk and low-risk businesses for deeper insight. What’s the difference?

Blacklists & Velocity Checks: 

Identify repeat offenders and monitor transaction frequency.

Trusted Payment Solutions

Use payment solutions like PayFirmly to ensure transactions flow only through trusted points of purchase, strengthening fraud prevention without adding friction for customers.

Explore more strategies: How to Accept Payments in Crypto

Regulatory landscape

Payment fraud prevention is now a legal and compliance requirement, particularly within regulated industries.

Key global frameworks:

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• PSD2 & PSD3 (EU): Mandate Strong Customer Authentication (SCA).
• MiCA (EU Crypto): sets fraud-related disclosure requirements.
• AMLD6 (EU): Holds executives accountable for fraud related to money laundering.
• FATF guidelines: International standards for fraud and AML compliance.

Can banks automatically detect payment fraud?

Yes, and they're improving all the time. Banks and payment providers now rely heavily on automated systems powered by artificial intelligence and real-time analytics to detect fraud. These systems evaluate:

• historical transaction data
• device fingerprints; and- IP addresses.
• geolocation mismatches
• payment velocity (sudden spikes in activity).

AI enables dynamic risk scoring and flags suspicious transactions before completion. In some cases, systems can automatically decline transactions, delay them for review or challenge users to provide additional authentication.

However, banks can improve. Businesses still need their own fraud prevention measures, especially if they operate in high-risk industries or across borders.

Learn more about compliance and risk management in our guide: High-Risk vs Low-Risk Business.

Prepare for Payment Fraud Before It Happens

Align with evolving standards to ensure legal compliance and maintain user trust.

Cybercriminals target businesses that accept online payments. You can expect fraud; prepare for it and respond when it occurs.

Fraudsters are fast, organised and well-funded. Your best defence is a proactive fraud prevention strategy based on awareness, smart technology and continuous adaptation.

At FirmEU, we help businesses implement fraud prevention protocols that work. From payment gateway integrations to advanced chargeback monitoring tools, we’re here to help you maintain a competitive advantage.

Ready to Stop Payment Fraud Before It Starts?

Speak to our experts and build your customized anti-fraud strategy today.

Schedule a Call