Peer-To-Peer Payment Fraud: What Your Business Needs to Know

Daniël de Jager
By Daniël de Jager
Joel Taylor
Reviewed by Joel Taylor

Published June 23, 2022.

Gloved hand holding money over a keyboard

Criminals are consistently coming up with new and intuitive ways to scam consumers and companies out of as much money as possible. Managers are realizing that writing off losses to fraud as a cost of doing business isn't the best option anymore, and it doesn't have to be so. One of the scams every individual and business needs to look out for is peer-to-peer (P2P) payment scams.

It's important to note the difference between a scam and a fraud. A scam involves deception, with the victim authorizing a transaction to the scammer, while fraud involves a fraudster gaining unauthorized access or usage and then initiating an unauthorized transaction.

Common Peer-To-Peer Payment Scams

Most P2P scams have similar elements and can occur anywhere that a payment intermediary exists between two parties, be it businesses or consumers. Fraudsters commonly target areas that have a limited total transaction time, such as online marketplaces and services like Uber and Doordash.

Common examples include:

  • Reselling digital goods purchased with stolen credit card information.
  • Posing as business authorities to purchase heavily-discounted last-minute tickets and resell them at almost full price.
  • Fooling businesses and consumers by posing as payment intermediaries to steal money from consumers intended for businesses.
  • Promising digital goods on popular marketplaces and then not providing them once payment has been received.

Although most of those examples appear to only harm consumers and not businesses, all of them can have a dramatic effect on your company in more ways than one.

How Peer-To-Peer Payment Fraud Affects Businesses

One way a business can be unwittingly involved in a scam is to accept stolen funds for a product or service, such as from a stolen credit card purchased on the dark web. Using traditional tools, it's difficult to identify the source of the funds, leaving a business open to receiving fraudulent money. The business may honor the payment and provide the product or service paid using fraudulent money. Although you may get your money, your business becomes unwillingly involved in a crime that can open you up to legal issues.

Secondly, in most cases where a business and a consumer have been victims of fraud, at least one of the parties has to be compensated. Unfortunately for businesses, it's usually the consumer that banks and legal authorities protect. In the event that a fraudster has purchased a product from you with stolen information and then sold it to another consumer, the individual whose card was stolen will likely file for a chargeback. Since they weren't involved in the transaction, the bank will usually grant them the chargeback at the expense of your funds, meaning that the first consumer walks away with your product without ever realizing they were involved in a fraudulent transaction, and the fraudster walks away with your money.

Additionally, the more traffic your online platform sees (especially with services like flights and resell marketplaces), the more likely there are to be fraudsters. If your platform suffers a high risk of fraudulent activity, you can be flagged as a high-risk merchant and incur massive fines—or even get blacklisted! Read more about this in our guide to staying in the chargeback safe zone.

How to Protect Your Business From Peer-To-Peer Payment Fraud

In 2020, studies found that identity fraud (P2P scams included) amounted to $43 billion. Thus, it's essential to take action to prevent such scams from affecting your business. For a fraud manager's comprehensive guide to payment fraud and how to protect your business against it, check out the A to Z of payment fraud protection.

Adding rules to your signup, login, and checkout processes won't stop sophisticated fraudsters that can find ways to break them, but it will turn away legitimate customers.

Integrating advanced predictive artificial intelligence fraud protection software such as nSure.ai within your systems will help prevent scams and give you peace of mind, all without having to impact your sales customer base. Our payment fraud protection technology has empowered merchants around the world to combat fraud while reducing friction and increasing acceptance rates.

Unfortunately, under the current legislation, there is little that businesses can do to combat online fraud that has already occurred. Preventing fraud is not only better and easier than dealing with fraud once it's occurred, it's completely essential for online businesses and e-commerce merchants.