Online shopping was one of the most exciting aspects of the early internet.
It offered consumers a completely new kind of 24/7 shopping experience. And it gave merchants access to brand new markets.
Around the same time, contactless payments became increasingly popular.
But the excitement around these advances was soon dampened by the inevitable arrival of fraudsters. They quickly found ways defraud all parties.
Today, payment security is mandatory. It supports the continuing growth of eCommerce globally.
In this blog we the importance of payment security and the ways businesses can implement it.
What is payment security?
Payment security refers to an ever-evolving set of standards and protocols that safeguard financial transactions from unauthorised access, breaches, and fraud.
It's vital for maintaining financial protection, regulatory adherence, and customer trust for both online and physical stores.
Payment security is crucial for businesses, especially in online sales. Different types of businesses require different levels of security to protect against fraud.
Global retail e-commerce sales reached nearly six trillion U.S. dollars in 2023. Estimates indicated this figure will surpass eight trillion dollars by 2027.
With this continuing growth of eCommerce, it's essential for businesses to have strong security measures in place.
It helps prevent fraudulent transactions and protects both the business and its customers from possible liabilities.
Early internet safety
Visa was the first to introduce security standards for electronic transactions in the late 1990s.
This was known as the Cardholder Information Security Program (CISP). It was launched in 1999 and enforced in 2001.
This initiative aimed to safeguard Visa cardholder data by ensuring merchants, their clients, and other parties adhered to new security standards and protocols.
Soon after, Mastercard, Discover and American Express each introduced their own security programs.
However, the differences in security standards from one card scheme to the next soon left merchants confused and struggling to comply…
Payment Security and PCI Compliance
The Payment Card Industry Data Security Standard (PCI DSS) ensures consistent payment security globally.
Organizations handling cardholder data must meet PCI DSS requirements, which continually evolve to counter new fraud techniques.
Compliance methods vary based on transaction volume. There are currently four levels of merchant compliance ranging from:
- Level 1: The strictest level. Requires external audits by certified assessors
- Level 4: The minimal level. Merchants may self-assess their compliance
Different factors influence compliance levels.
For example, merchants integrated with payment gateways that have their own built-in security measures reduce their exposure to security breaches.
Robust payment security is essential for PCI compliance and fraud prevention, regardless of transaction volume.
Why is secure payment processing important for online transactions?
Businesses must fulfil obligations to customers, regulators, and stakeholders to thrive.
Payment management will mitigate various types of risk. It can be automated based on specific business needs using payment orchestration.
1. Fraud prevention
Online merchants face many types of fraud risks every day. These can range from money laundering to identity theft.
Secure payment processing integrates fraud detection in a number of ways, including (but not limited to) mechanisms that:
- Analyse transaction patterns
- Monitor for suspicious activity
- Employ machine learning algorithms to prevent fraudulent transactions in real-time.
2. Business reputation
Data breaches can harm the reputation of a business, resulting in loss of customer trust and having a negative impact on sales.
News of such breaches spreads fast and customers don’t forget quickly. Such a breach is likely to tarnish the brand and make customers wary of doing business with it for a long while to come.
Secure payment processing therefore not only preserves your brand, but also protects sales.
3. Reduces chargebacks
Chargebacks are one of the most frustrating, time-consuming and costly aspects of doing business for a merchant.
They occur when customers dispute a transaction and seek a refund via their credit card company.
They are such an overhead to manage that nearly 60% of merchants don’t even dispute at least 40% of chargebacks. This means that revenue (and often stock too) is simply written off.
Secure payment systems help prevent this by verifying the customer, saving businesses from losing money and paying extra fees.
Types of payment security
Encryption
Encryption acts like a lock that keeps sensitive information safe from bad actors.
Two main encryption types exist:
- Symmetric: This uses one key for locking and unlocking data
- Asymmetric (public-key encryption): This uses two keys: a public one for locking data and a private one for unlocking it
Asymmetric encryption is typically seen as more secure because the private key is kept private.
Businesses use encryption to protect information when it's sent between customers' devices and their websites or payment platforms.
They use special protocols like SSL and TLS to create secure connections.
It's important for businesses to use strong encryption methods, keep their systems updated, and manage their keys properly to keep customer information safe from hackers.
Regular check-ups and updates are essential for staying ahead of new threats and keeping customer data secure.
Tokenization
Tokenization is a security method that replaces payment information with random strings of characters. These tokens allow businesses to manage payments without handling sensitive data each time.
In other words, it is like the disguising of payment information. The disguise comes in the form of a ‘token’ that keeps customers’ real payment details hidden.
Tokenization is effective even when there are multiple parties involved in a transaction.
It works using public and private keys: the public key creates tokens, while the private key authorizes payments.
This keeps cardholder data safe and reduces the risk of information being exposed online.
Authentication
Authentication is similar to a digital lock and key that lets only authorized people access important payment systems and details.
It's like a gatekeeper checking IDs to make sure only the right individuals can make secure online payments or use payment systems.
This process confirms the identity of users, like customers making purchases or employees accessing systems, to stop unauthorised access and fraud.
There are different ways to authenticate, and each offers different levels of security.
SSL Protocol
Secure Sockets Layer (SSL) encrypts website communications. This is vital for securing pages handling customer payments. Customers check for the lock icon or "HTTPS" in the address bar to confirm SSL is in effect.
Acquiring SSL is easy and affordable so ensure the timely renewal of your certificate. But beware - cybercriminals can obtaining SSL certificates for fraudulent sites.
AVS
Address Verification Service AVS compares the checkout addresses with the cardholder's known address and sends a response code for verification.
However, AVS is limited as typos or outdated addresses can cause mismatches. So, although it is a useful form of fraud protection, it is better paired with other security measures for more robust protection.
3DS
3D Secure (3DS) is a popular way to protect your business and customers from payment fraud.
It counters fraud by analysing data gathered during the checkout process, including the customer’s IP address, transaction history, and purchase amount.
This data is shared between banks and other systems to quickly check if the purchase is likely to be legitimate.
If it seems risky, the customer might need to take an extra step, like entering a code sent to their phone (OTPs via text/email).
CVV
Card Verification Value (CVV) is a code (usually three digits) found on the back of a customer’s credit card. It is used to confirm the cardholder physically has the card in their possession.
Although CVV can aid the prevention of Card Not Present (CNP) fraud, it has limitations. Stolen CVV numbers from data breaches or handwritten card information pose risks.
Like AVS, CVV works best when combined with other payment security measures to enhance overall protection.
What are the most secure online payment methods?
The most secure online payment methods use multiple layers of authentication for customer verification.
They employ encryption and other advanced security measures to protect sensitive data.
Established payment methods are generally more secure than newer options as they will have been subject to longer periods of testing and development of security measures.
Arguably, newer forms of payment may have weaknesses that can be quickly exploited by fraudsters.
Nuvei’s fraud and risk management solutions
Our payment platform integrates sophisticated real-time fraud detection into your existing payment solutions.
We can help you can automatically direct your customers payment flows through the most efficient authentication processes.
This is an acquirer-agnostic solution for that provides seamless and secure payment solution for you and your customers.
Conclusion
To keep pace with emerging security threats, payment security methods are also continually evolving.
Maintaining compliance with these changing rules and processes may seem an arduous task, but it is vitally important for merchants to do so.
Security is the basis of trust between merchants and their customers. Compliance with regulations is also essential to their ability to accept electronic payments and safeguard against financial risks.
Robust security measures, such as PCI compliance, encryption, tokenization, authentication, SSL protocol, AVS, 3DS, and CVV, help protect against fraud, data breaches, and chargebacks.
By adopting secure payment processing methods, businesses can preserve their reputation, prevent financial losses, and ensure a seamless experience for customers.
This ultimately contributes to their long-term success in the competitive online marketplace.
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