Payment processing has advanced rapidly over the past decade with the rise of e-commerce and mobile payments.
Merchants now have numerous options to accept payments other than traditional in-person card-present transactions at a physical point of sale (POS). MOTO or Mail Order/Telephone Order refers to payment transactions where the card is not physically present at the time of authorization and capture. MOTO payments are becoming increasingly popular as more consumers opt to shop online, over the phone, or via mobile apps.
However, the lack of a physical card at the POS also introduces additional fraud risks to the payment flow. Stolen payment card information can be easily misused for MOTO transactions since there are limited mechanisms to verify the identity of the cardholder. Scammers frequently exploit this vulnerability to conduct MOTO payment fraud, resulting in millions in financial losses each year.
As MOTO payments continue gaining ground, it is critical for payment processors and merchants to implement robust fraud prevention strategies. Fraud detection systems, enhanced verification tools, and monitoring for suspicious activity can all help reduce MOTO fraud when deployed effectively. At the same time, these controls should not undermine the user experience by imposing excessive friction.
Balancing security and seamlessness poses an ongoing challenge in the payment industry. By leveraging technologies and verification techniques judiciously, payment processors and merchants can work towards a sweet spot that minimizes fraud for MOTO transactions while still providing a great experience for legitimate customers. With the right approach and practices in place, MOTO payments can be made safe, secure, and scalable.
Risks of MOTO transactions
MOTO or Mail Order/Telephone Order payments lack the in-person verification of a physical card present at the point of sale. As a result, MOTO transactions face significantly higher fraud risks compared to card-present payments. According to recent reports, MOTO payments account for only about 5-10% of total transactions but nearly 30% of payment fraud losses.
Some of the major fraud risks associated with MOTO payments include:
Stolen card information
Since no card is physically presented, stolen payment card numbers are frequently used to conduct MOTO fraud. Scammers obtain card details through various means like data breaches, phishing attacks, skimming devices, etc., and use them for unauthorized MOTO purchases.
Limited authentication
Without a card, it is difficult to verify the identity of the cardholder through card details, chip data, or real-time authorization. Fraudsters exploit this by easily using someone else’s card number. Basic details like name, billing address, security code, etc. have limited effectiveness in authenticating MOTO transactions.
Targeting vulnerable groups
Scammers often prey on vulnerable populations like the elderly who tend to shop more through catalogs, websites, and over the phone. Groups with limited technical awareness are also more susceptible to social engineering attacks aimed at stealing payment information.
Invalid/expired cards
Since cards are not physically read, invalid, expired, or fake card numbers can be entered for MOTO transactions without getting detected. This allows fraudsters to conduct transactions even with made-up card details.
Tools to Reduce Fraud
With risks proliferating, it is important for payment processors and merchants to implement comprehensive fraud prevention strategies for MOTO payments. A combination of tools including fraud detection systems, enhanced verification techniques, and close monitoring can effectively minimize MOTO fraud when deployed appropriately.
Fraud detection systems that leverage machine learning and rules-based models help analyze MOTO transactions to spot anomalies indicating potential fraud. Algorithms detect patterns in fraudulent behavior and flag suspicious transactions for review. These systems get smarter over time based on analyzing historical fraud patterns as well as changing trends. While not infallible, they can reduce a substantial portion of obvious fraudulent attempts.
Enhanced verification provides an extra layer of security for high-risk MOTO payments. Verification techniques such as 3D Secure authentication, CVV checks, expiration date validation, AVS (Address Verification Service), etc. validate critical details to ensure the legitimacy of a transaction even without a physical card. The specific tools used depend on the payment method and available information. Verification helps validate MOTO transactions that get flagged by the fraud detection system.
Closely monitoring MOTO transactions, users, agents, and metrics helps identify dubious activity that may evade automated detection. Payment processors track trends like sudden spikes in transaction volume from a single user or agent, differences in average ticket size or frequency, etc. Merchants also monitor their agents and teams for any suspicious behavior. Even a small anomaly could indicate unauthorized access or attempted fraud. Detailed monitoring and reporting provide visibility into the MOTO payment flow and any irregularities affecting it.
When deployed comprehensively, fraud detection, enhanced verification, and close monitoring can significantly reduce MOTO fraud. By analyzing transactions at multiple points, validating critical details, monitoring metrics closely, and adapting to changes over time, these tools make it difficult for fraudsters to abuse MOTO payments. With the right mix of techniques and technologies, MOTO payments can be made more secure while maintaining accessibility and convenience for legitimate customers. Overall, these tools facilitate securing the growing volume of MOTO transactions in a balanced yet effective manner.
Balancing Security and User Experience
A fundamental challenge in payment processing involves striking a balance between security and user experience. On the one hand, threats like fraud and scams necessitate implementing robust security controls to mitigate risks. This often means additional verification, restrictions, and friction which can negatively impact the user experience. On the other hand, a poor user experience leads to a loss of customers, revenue, and business.
For MOTO payments, this challenge is even more pronounced given the higher fraud risks and limited in-person interaction. Strong security is essential to curb fraud but should not make the payment process too tedious, preventing legitimate customers from completing a transaction. Security and user experience need to be balanced to optimize the MOTO payment flow. Some key considerations in this regard include:
Ensuring a seamless experience: While extra verification for high-risk MOTO payments provides security, it should not frustrate users with complex challenges, lengthy delays, or an inconsistent experience across channels. The process must feel seamless for the average customer. Excessive friction often backfires by discouraging business.
Implementing graduated controls: Applying controls broadly across all MOTO payments is ineffective and detrimental to the experience. A graduated, targeted approach based on risk assessment is more suitable. Use transaction risk scoring to determine the level of verification and restrictions needed for each payment to strike a balance.
Evaluating false positives: Any security control will inevitably result in some false positives, causing some legitimate payments to get wrongly flagged as suspicious. Payment processors and merchants must evaluate tools based on their ability to minimize false positives and still detect a high proportion of actual fraud. Some false positives are better than none, but too many become a problem.
Adapting to changes: The threats landscape and consumer behavior keep evolving continuously. What works today may be ineffective tomorrow. Fraud patterns change as fraudsters come up with new tactics and technologies advance. Regular assessment of tools, techniques, metrics, and the overall strategy is critical to maintaining the right balance between security and experience.
Overall, balancing security and user experience is crucial to the success and scalability of MOTO payments. By optimizing security controls, implementing them judiciously, adapting to changes proactively, and evaluating tools rigorously, payment processors and merchants can make MOTO payments secure yet seamless. With the right balance of risk management and frictionlessness, MOTO transactions can be prevented from becoming either too risky or too tedious. Payments can reach more customers and higher volumes without compromising on either front.
