What is Payment Fraud & How To Avoid It

You found a great opportunity: a product to buy, a business idea, or a job to apply. When it looks impossible to go wrong, it does. You did your part, but the other person didn’t. You wired the funds, but the other hasn’t responded since then. What will happen to your funds? Will you ever get that product?

The internet has offered us a lot of things that we wouldn’t have without, but with it we’ve also been exposed to many scams that we wouldn’t have had to worry about otherwise. Today there are a lot of payment scams out there to be wary of, and you should be certain that you protect yourself as well as possible from all of them.

No matter what the occasion is, payment fraud wil turn any business into a current scam operation. A client who takes these risks loses the money they sent, and the other person walks away or attempts to.

In this confidence trick…

  • The customer assumes the other party will move forward with the deal after payment
  • They underestimate the value of payment security
  • The fraudster misleads the victim to trust their method

What Is Payment Fraud?

If everything was legit, how did you end up losing money?

In a payment scam, people use confidence tricks or misrepresent the facts to avoid paying you or undo the transaction. 

When both parties have the same rights, it appears in the form of charge-backs and identity theft. When the client has control of the deal, however, the scammer uses the advance fee trick to get that control.

Mind that any transaction of any nature can lead to a payment scam. If you detect one, chances are the product or business doesn’t exist. All of it could be a dog and pony show to grab your cash.

Some victims fall for it knowing the consequences. But they don’t want to give up on such a good offer. If it’s too good to be true, guess what happens.

They encourage you to pay using their method (with discounts, for example). After you wire money, if they haven’t walked away yet, they make up an excuse to pay again.

  • They got less than agreed due to the wire transfer fees
  • They never received the payment

These stories aren’t new. Only credit card payment scams alone cost over $24 billion a year worldwide. A conservative number, that increases as the use of credit cards wordwide does, excluding the majority of unreported cases. The sheer number of scams with other payment methods is very hard to estimate.

Sadly, victims reach out and report once it’s too late. As a prey of identity theft or confidence tricks, there’s almost nothing you can do except being more careful in the future. If you scammed others (please don’t), you’d have more chances to earn money back than by filing a complaint.

Types Of Payment Scams

Scammers have preferred payments. One reason they’re easy to recognize is how good they are giving instruction and following up on payments. After you send money, however, they start ignoring you.

If you are attempting to buy something from someone and they suggest that you use a service such as Moneygram or Western Union to pay, you should be very leery.

Do not assume every person suggesting these methods is trying to scam you. But when they do, you should follow your terms, not theirs, based on the safest practices. What they recommend may be secure for them, but not for you. Here, knowing your payment options becomes important.

#1 Identity Theft

The person has no intention of doing business with you. The opportunity they sold you is a hook to lead you to a fake payment website or phishing site

In the best case, you lose no money, but neither get the deal you wanted. And the worst? Lose all your money, accounts, ruin your credit, and other losses that take years to recover.

You didn’t give them permission. They mislead you with fake verification messages and invoices.

#2 Impersonation

The con man fakes the identity of your Escrow company, your bank, the IRS, a debt collector or a similar entity. You receive an email or phone call asking you to wire money on a tight deadline. What if you don’t? Aside from the false threats, nothing.

Scammers can find the basic information online and use it to verify they are who they claim to be. However, you rarely get phone requests from the authorities.

  • The IRS never uses electronic messaging nor phone.
  • Collectors can’t force you to pay and might call after you got their letter months ago.
  • Your bank has never emailed you, and you don’t need to validate your payment. 

Don’t follow any instructions until you can verify the identity yourself.

#3 Denial Of Payment

You made a secure payment, and everything went like clockwork, except for the payee. As a seller, they never received your payment, so they ask you to pay again. As a buyer, they claim to haven’t received the item, so you send them another one.

This silly scam expects victims to pay twice for the same deal. If the other didn’t get anything, the victim assumes their money is still on their account, even though you don’t have it.

A quick check on your account will tell whether they have received it or not— otherwise, you’d get an alert (hopefully not a phishing message). There’s nothing wrong with re-sending funds as long as you got back what you sent first.

If you paid with no buyer protection and know the address was right, assume it’s a confidence trick.

#4 Money Laundering

Money laundering relates in the sense that you get paid to process payments. Some unknown contacts will offer big sums to move money for them. Who wouldn’t take that offer?

Why don’t they do it themselves? Because they’re busy, they can’t wire to this other country, or they look for an assistant, among other excuses. 

Processing illegal payments can put your freedom and life at risk. People offering such amazing jobs want to clean the illegal money earned. They walk away guilt-free, and you are linked to their crimes as a mafia worker. But at least you got a good paycheck!

#5 Escrow Services

The last place you’d expect payment fraud is from payment protection services. Escrow involves trusting an impartial third-party to manage both member’s funds. Due to their success in history and social feedback, you know they won’t let you down.

You want to be suspicious of any escrow you never heard before. Beware when your payee insists on a specific service. They may not be so impartial after all:

  • Your payee creates a fake escrow to steal funds and bank information.
  • After the agreement, the payee sends you a phishing invoice that redirects to an Escrow site clone.
  • A bogus escrow steals both parties’ funds and shuts down the same day.

Escrow makes the payment as frictionless as possible for both. The moment you start getting email alerts and messages, it could either be your company or phishing impersonation emails from the payee.

#6 Partial / Down Payments

A friendly seller may try to build trust when offering a no-brainer deal. He lets you order an item for a fraction of its cost, and you pay the full amount after receiving the package.

The problem? Advance fee fraud. Especially when paying outside the e-com platform, the sale doesn’t start until the seller ships the item. So they can walk away with your money with no obligation to move forward.

Most platforms look at it as a confidence trick and buyer’s responsibility, meaning you can’t get your money back. Often, down payment scams happen when selling high-ticket products.

#7 Friendly Fraud

Scammers who buy goods online generally coordinate dozens of stolen accounts. These may not be attached to any card, so the payments bounce back after you make the order.

In friendly fraud, however, the dishonest buyer uses his account to buy, then goes to the bank reporting the transaction and refunds his money. 

They must convince the institution they never made the transfer, or you didn’t get the item. The easiest way? Identity theft: tell them you didn’t authorize that payment.

In an e-com platform, the order appears as “Completed,” but the client recovers his money and gets a free product. What better way to hide a scam than reporting a scam?

Payment Red Flags And How To Avoid Fraud

After you get a deal, most people think the payment is the easy part. But as we’ve seen, it’s often the only part of a scam. If you’re the one who pays first, you should choose the most secure methods for you regardless of trust, unless you don’t mind losing money.

  • The payee can hide his address and IP location (spoofing) to do business in your area. 
  • Someone who reaches out to you requests immediate payment, often posing as an agent, collector, or past lender.
  • Be cautious with any message asking you to re-login via their link. Instead of asking you money, another phishing variation suggests giving money to hook more victims. They promise tax returns or “stimulus checks.”
  • You can’t get the deal unless you use the payment method they impose. It could be wire transfer, P2P, Bitcoin, Giftcards, or other unusual means.
  • If the payment went right, but the payee says he didn’t receive it, it may either be an error or a trick. 

Summary

Any transaction may lead to payment scams, whether its fake money orders or peer to peer. When selling and buying online, it’s too easy for the fraudster to fake that they have a valid account or a website. This is why it is important to be aware of all of the payment scams that are out there and to continue to insulate yourself from them.

Prevalent payment scams is also a reason why most payment systems try to use some form of buyer protection. Whether you are accepting or sending payments, you should always use payment systems that offer you some kind of protection.

As one last tip, make sure that you only give out personal information as is necessary and never more. You may lose your money in a payment scam, but a compromised identity can lead to permanent problems.

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