5 Key Strategies to Combat Rising Card Fraud

Digital payments continue to increase rapidly all across the globe and so is the seemingly ever-present challenge of card fraud. Cybercriminals are more sophisticated and aggressive than ever before, relying on both advanced technology and human behavior to exploit the slightest vulnerability.

Instant payments are a perfect example. Transactions are convenient, fast, and final, but are easy targets for fraud. There is often little consumers can do once they have been scammed and sent money to one of the countless bad actors who specifically target this type of transaction. 

As the Capgemini World Payments Report 2025 highlights, nearly all payment industry executives are concerned about instant payment fraud, a sentiment that has led some banks to receive, but not send instant payments. This hesitance illustrates how fraud risks can inhibit the potential of innovative payment methods, causing bottlenecks and slowing down industry progress.

When this type of fraud occurs, it creates issues for both consumers, who may have actually authorized a payment to a scammer, and the bank or credit union who must help clean up a problem they did not start. In any event, dealing with the damage caused by such a fraud event is time-consuming and expensive for both the consumer and their financial institution.

Fraud has become a multibillion dollar per year threat to the payment industry and there is a critical need for robust fraud detection and prevention strategies to protect both consumers and businesses.

Card Fraud is Increasing Year on Year

The appeal of fast, convenient digital payments has caused the proliferation in alternative payment methods, as well as the steady increase in both transaction volumes and payment card fraud. Improved fraud detection and prevention are now strategic imperatives for the payments industry.

Industry statistics reflect the magnitude of the fraud challenge. According to data published on the WalletHub website, global fraud losses on credit and debit cards now total more than USD 35 billion per year. These figures underline the need for urgency to develop and implement effective fraud protection and detection methods across the payment industry.

Key Methods to Detect & Prevent Card Fraud

To counteract these growing fraud threats, financial institutions and payment processors are investing in advanced detection and prevention technologies. Some of the primary methods include:

1 - Testing Automation

Comprehensive testing must be an essential component in any strategy to ensure the reliability and security of every payment transaction. Testing helps all industry participants verify that their mission-critical applications, including fraud detection systems, are functioning as intended and operating at peak efficiency.

Testing automation enables organizations to expand their test coverage and address a broader range of transaction processing scenarios more effectively. For most organizations, automating the 20% of transactions that generate 80% of their volume will significantly reduce the testing overhead on its testing and QA resources, freeing up valuable time to focus on more complex and strategic initiatives, like fighting fraud. 

2 - Encryption and Tokenization

Encryption and Tokenization are critical for protecting sensitive customer data. Encryption ensures that data is transformed into a secure format while in transit, making it unreadable to unauthorized parties. Tokenization, on the other hand, replaces sensitive information, such as credit card numbers, with unique tokens that can be safely used for transactions.

By employing encryption and tokenization, financial institutions can prevent fraudsters from intercepting or accessing sensitive data, reducing the risk of card fraud and improving customer confidence.

3 - Multi-Factor Authentication

Multi-factor authentication (MFA) is a security measure that requires users to verify their identity using multiple steps, such as a password and a one-time code sent to their mobile device. By adding additional layers of verification, MFA makes it harder for fraudsters to gain unauthorized access to accounts.

Financial institutions are increasingly implementing MFA as part of their fraud prevention strategies, especially for high-risk transactions. MFA not only protects customer accounts but also serves as a deterrent to fraudsters, who are more likely to abandon their efforts when they encounter these additional security hurdles.

4 - Behavioral Analysis and Anomaly Detection

One effective way to detect fraud is by analyzing users’ transactional behavior. Through machine learning, banks and payment processors can establish behavioral baselines for each customer, such as typical spending patterns, geographic locations, and transaction types. When an individual item appears to deviate significantly from this baseline, it raises a red flag, either preventing a fraudulent transaction from taking place or prompting further investigation.

Behavioral analysis allows financial institutions to detect potential fraud early, reducing the impact on both the customer and the institution. When combined with anomaly detection, behavioral analysis becomes even more powerful, enabling banks to quickly identify suspicious patterns, such as large or repeated transactions that may indicate fraudulent activity.

5 - The Use of AI

Artificial intelligence (AI) in the payments industry is still in its early days, but it has the potential to become a key asset in the fight against card fraud. By analyzing large volumes of transaction data in real-time, AI can help identify fraud patterns that might otherwise go unnoticed.

In the Capgemini World Payment Report, Temenos Business Line Director for Payments, Mick Fennell, said, "Banks can leverage AI across multiple facets of payment processing. However, firstly, for business critical AI-driven payment decision-making, employing an 'explainable AI' technology to ensure transparency, is essential for auditors and regulatory compliance. Then, within payments processing, banks can deploy this explainable AI-based decision-making in a number of areas. These include fraud detection, where AI is minimizing false positives and optimizing human oversight.”

How Paragon Can Help You Implement a Robust Payment Testing Environment

At Paragon Application Systems, we believe that a comprehensive payment testing strategy, supported by innovative and robust testing capabilities is necessary for any financial services organization to address both opportunities and threats presented by the rapidly evolving payments landscape.

With over 30 years of experience in payment testing, we’ve helped credit and debit card issuers and acquirers, financial institutions, card brands, networks, payment processors and retailers keep their mission-critical payment systems secure, compliant, and operating at peak efficiency.

Our testing tools and simulators are tailored specifically to address the unique challenges faced by the payment industry and provide clients with total control over their payment testing environment.

Interested in learning more? Reach out to our team of payment testing professionals today.