Credit Card Fraud and Blockchain Benefits
Early adopters of the PumaPay payment protocol based their choice on the simple fact that payments over the blockchain are flexible, functional and, most importantly safe. Blockchain transactions are less risky because of the decentralization of data, while smart contracts, allow people more freedom, security, speed, cost efficiency and accuracy that centralized third parties cannot provide. We are dealing here with issues of transparency and trust which are however, contested when it comes to using credit cards. Many businesses struggle with fraud prevention in financial transactions and the technology of the blockchain appears to offer a solution to the problem. Let us first see some of the cases where identity theft and fraud occurred when using a credit card and secondly, whether blockchain technology can eliminate the problem of fraudulent activity.
Credit Card Fraud: All you Need to Know
With more of us increasingly relying on online transactions when paying for services and other purchases, and the convenience of online payment service systems such as PayPal, Google Wallet or Skrill, it is inevitable that some of us would have experienced at least once some form of fraud. According to estimates by the Nilson Report newsletter that offers statistics for the card and mobile payment industry, the amount of money lost worldwide from card fraud is currently estimated at $22.80 billion and is expected to reach $32.96 billion in 2021.
Among the various types of cybercrime resulting from the use of credit cards, two main ones can be distinguished: those involving a credit card and those without the presence of a card. The most usual kind of fraud occurs online when information is stolen or used illegally after fraudsters send phishing emails. While less common, “credit card skimming,” involves the use of a card swipe mechanism called the skimmer and when the card is swiped through it, the device captures and stores the information in the card’s magnetic stripe. Thieves use the info to make payments online or by using a fake credit card.
From links to emails that ask for your info to obscure sellers online and websites whose url does not start with HTTPS (Hypertext Transfer Protocol Secure)—a sign which indicates your communication is not encrypted and thus not secure—fraudulent activity comes in many guises.
The Future of Payments
Hailed as the future of payments, blockchain offers the possibility of salvaging financial payments from the talons of impostors and thieves who lurk in the shadows of online communication and billing systems. Beyond traditional payment systems— that have become the playground for fraudsters, and financial institutions playing the role of the middleman, there is the blockchain. Cryptocurrency payments are characterized by the movement of funds pushed from one party to another through a private network. Each transaction is recorded in a blockchain, with all data stored being accessible to everyone.
PumaPay’s PullPayment protocol, for example, enables merchants to choose from three available billing models: single, recurring and a third option which allows for an initial, single payment, followed by recurring ones. The merchant then provides these smart contracts to their customers who sign up to the models that best fit their needs. The payment is done through a mobile device with the merchant initiating the payment and asking from the customer to approve the payment through a QR code, before proceeding to pull the payment from the customers’ wallets. There are no third parties involved, no sharing of the customers’ personal information, and no fees, apart from those gas fees that the merchant settles. Merchants save on costly credit card fees which can range from 0.5% to 5%, with 20 to 30 cents extra for each transaction. Furthermore, everything is recorded for transparency and clarity. Not to mention, the extra costs that banks need to cover when fraudulent activity is recorded as client compensation. With blockchain there are no such worries, as the risk of fraud is reduced. Blockchain payments such as those enabled through PumaPay’s smart contracts eliminate the risk of chargebacks for the merchants, and guarantee anonymity for the end user.
At various occasions, it has been discerned that credit card transactions can easily be hacked, whereas blockchain transactions are almost impossible to penetrate. Therefore, the financial services industry is exploring blockchain technology. Beyond the obvious concerns over security, fraud incurs considerable costs to a business as well as undermines its brand and consumer loyalty. If you are interested in exploring the potential of blockchain solutions or just want to protect your business from online fraud, head over to PumaPay’s website to find out how we are using the technology to simplify online payments.