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What is payment fraud? Prevention and protection for Canadian businesses
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fraud tools, fraud prevention

What is payment fraud? Prevention and protection for Canadian businesses

By: Moneris Team
July 01, 2026 clock Calculating time...
A person holding a credit card and phone

Payment fraud happens when someone uses stolen or manipulated payment information to complete a transaction without proper authorization.


Key takeaways

  1. Payment fraud involves unauthorized or deceptive transactions intended to access funds or sensitive financial information. 
  2. Businesses may encounter several forms of fraud, including card-not-present fraud, phishing, chargeback fraud and account takeover schemes. 
  3. Attackers often exploit gaps in payment security, system vulnerabilities or human behaviour to carry out fraudulent transactions. 
  4. Warning signs such as unusual purchase patterns, rushed delivery requests or repeated payment attempts can indicate elevated fraud risk. 
  5. Financial losses, reputational harm, operational disruption and compliance consequences are among the most significant impacts fraud can have on a business. 
  6. Secure payment technologies and layered protection measures help reduce fraud risk by protecting transaction data and strengthening payment integrity. 

Payment fraud involves unauthorized transactions or deceptive attempts to access funds, payment credentials or sensitive financial information. It can affect any business that accepts card or digital payments, often resulting in financial loss, chargebacks or reputational harm. 

As payment technology evolves, fraudsters continue to target online transactions, stolen card details and customer accounts. Card-not-present fraud and chargeback fraud are among the most common examples, and they can impact businesses of any size or industry. 

Understanding how fraud works in Canada is especially important as digital payments continue to grow and tactics evolve alongside modern payment technology. This guide explains common fraud types, how they happen and the tools and strategies that help businesses strengthen payment security and accept payments securely—every time. 

What is payment fraud?

Payment fraud happens when someone uses stolen or manipulated payment information to complete a transaction without proper authorization. It can involve credit cards, debit cards, digital wallets, bank transfers or other electronic payment methods. The goal is typically to obtain money, goods or services under false pretenses—often before the fraud is even detected. 

Unlike simple billing errors or customer disputes, payment fraud involves deliberate deception. Fraudsters may use stolen card numbers, access compromised accounts or impersonate legitimate customers to complete transactions. In many cases, businesses don’t realize fraud has occurred until a chargeback is requested or suspicious activity is identified during transaction review. 

Payment fraud can occur both online and in-person. Online transactions are especially vulnerable because physical cards and identity documents are not present for verification. However, in-store fraud can also occur through counterfeit cards, stolen cards or attempts to bypass standard payment procedures. 

As payment technology continues to evolve, so do fraud tactics. Understanding what payment fraud is and how it affects payment processing helps businesses recognize potential risks and maintain secure, reliable payment operations. 

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Common types of payment fraud businesses face 

illustration of how chargeback fraud works

Payment fraud can take many forms, and each type targets different parts of the payment process. Some schemes focus on stealing payment credentials, while others rely on deception, account access or exploiting transaction policies. Here are the most common types of payment fraud to recognize where risks exist and how they can occur in real-world scenarios. 


Card-not-present fraud


Card-not-present fraud occurs when stolen payment card information is used to complete a transaction without physically presenting the card. This typically happens in online, phone or mail orders, where fraudsters only need key details such as the card number, expiration date and security code. Because there’s no physical verification, these transactions carry a higher risk of unauthorized use. 

This type of fraud is one of the most common challenges for businesses that accept remote payments. Fraudsters often obtain card details through data breaches, phishing attacks or compromised websites, then use that information to make purchases before the cardholder or business detects suspicious activity. 


Chargeback fraud


Chargeback fraud—sometimes called friendly fraud—happens when a customer disputes a legitimate transaction and claims it was unauthorized or invalid. In these cases, the cardholder may have received the goods or services but requests a refund through their bank instead of contacting the business directly. 

Chargebacks can result in lost revenue, additional fees and increased scrutiny from payment providers. Even when unintentional, frequent disputes can create operational challenges and affect a business’s ability to process payments smoothly. 


Account takeover fraud


Account takeover fraud occurs when an attacker gains unauthorized access to a customer’s account. This often happens through stolen login credentials, weak passwords or phishing attacks that trick users into revealing sensitive information. 

Once access is obtained, fraudsters can make purchases, change account details or transfer funds. Because the activity appears to come from a legitimate account, it can be difficult to detect immediately, increasing the risk of financial and operational impact. 


Authorized push payment fraud


Authorized push payment fraud occurs when individuals or businesses are tricked into voluntarily sending money to a fraudulent account. This often involves impersonation, such as someone posing as a supplier, service provider or trusted organization requesting payment. 

These scams rely on deception rather than system vulnerabilities, making them especially difficult to detect through technical controls alone. Businesses that regularly process invoices or electronic transfers may be particularly vulnerable to this type of fraud. 


Refund fraud


Refund fraud involves manipulating a business’s return or refund process to obtain money or goods illegitimately. This can include returning stolen merchandise, falsely claiming a refund or exploiting weaknesses in refund policies. 


This type of fraud can lead to financial losses and increased administrative workload. Over time, repeated refund fraud may also disrupt inventory management and affect overall business operations. 


Phishing and social engineering

Phishing and social engineering attacks use deceptive communication to trick individuals into revealing payment information, login credentials or other sensitive data. These attacks often appear as emails, messages or phone calls that seem to come from trusted sources. 


Once fraudsters obtain this information, they can use it to access accounts, initiate transactions or carry out other forms of payment fraud. Because these tactics exploit human trust rather than technical systems, awareness and vigilance play an important role in reducing risk. 

How payment fraud happens 

Payment fraud usually begins when fraudsters gain access to payment information or exploit weaknesses in security systems. These attacks often occur behind the scenes, making them difficult to detect. Here are the most common ways in which payment fraud is carried out. 


Stolen payment credentials

A screen of login credentials

The most common way payment fraud is carried out is with stolen payment credentials, such as card numbers, login details or account information. Fraudsters may obtain this data through phishing emails, compromised websites, unsecured networks or previous data breaches. Once they have valid credentials, they can use them to make purchases or access accounts without raising immediate suspicion. 


Because the information itself is legitimate, fraudulent transactions can appear normal at first. This makes stolen credentials especially dangerous, as businesses may not realize fraud has occurred until a customer reports unauthorized activity or a chargeback is initiated. 

Social engineering and deception


Social engineering relies on deception rather than technical intrusion. Fraudsters may impersonate customers, vendors or trusted organizations to convince employees or customers to share sensitive information or approve payments. These tactics often create a sense of urgency or trust to reduce scrutiny. 

In many cases, individuals believe they’re acting on legitimate requests. This makes social engineering particularly effective, as it bypasses technical safeguards by exploiting human behaviour instead of system vulnerabilities. 


Data breaches and malware


Data breaches occur when attackers gain unauthorized access to systems that store payment or customer information. This can happen through malware, unsecured software or exploited system vulnerabilities. Once inside, fraudsters can collect large volumes of sensitive data for later use. 

Malware may also capture payment information during transactions or monitor activity over time. These attacks can affect businesses of any size and may go unnoticed until unusual transaction patterns or security alerts appear. 
  

Weak authentication and security vulnerabilities


Fraud can also occur when payment systems or accounts lack strong authentication measures. Weak passwords, outdated software or insufficient verification processes can create opportunities for unauthorized access. Without proper safeguards, attackers may be able to access accounts or complete transactions undetected. 

Strengthening authentication and maintaining secure payment systems helps reduce these risks. Modern payment security measures are designed to make unauthorized access more difficult and protect sensitive transaction data. 

How to detect and identify payment fraud

Infographic showing how to detect and identify payment fraud


Payment fraud often reveals itself through unusual transaction patterns or suspicious customer behaviour. Recognizing these warning signs early can help businesses investigate activity and reduce potential financial and operational impact. 


Moneris also provides additional guidance to help businesses recognize fraud risks and respond appropriately. You can also review our fraud prevention reference guide for a visual overview of common warning signs and prevention best practices. 


That said, here's what to pay attention to.

  1. Unusual transaction amounts: Transactions that are significantly larger than a customer’s typical purchase size may indicate unauthorized card use. Fraudsters often attempt high-value purchases to maximize their gain before the activity is detected or blocked. 
  2. Multiple declined payment attempts: Several failed transactions followed by a successful one can signal that stolen card details are being tested. Fraudsters may try different combinations of card information until they find one that works. 
  3. Requests for expedited shipping: Orders requesting overnight or rush delivery, especially for expensive or high-demand items, can be a warning sign. Fraudsters may try to receive goods quickly before the cardholder notices the fraudulent transaction. 
  4. Multiple cards used for similar transactions: When several different cards are used for purchases linked to the same customer, account or shipping address, it may indicate compromised payment credentials. This pattern can suggest that stolen card information is being used to complete multiple transactions. 
  5. Unexpected chargebacks or disputes: A sudden increase in chargebacks or disputed transactions may signal fraudulent activity. These disputes often occur after a cardholder notices unauthorized purchases on their account. 
  6. Changes to customer account details: Unexpected updates to account information, such as shipping addresses, email addresses or login credentials, can indicate account takeover attempts. Fraudsters often modify account details to gain control or redirect purchases. 
  7. Transactions from unfamiliar locations: Payments originating from geographic locations or IP addresses that don’t match typical customer behaviour may indicate unauthorized access. This is especially concerning when combined with other unusual transaction patterns. 
  8. Repeated login or access attempts: Multiple login attempts or password reset requests can signal efforts to gain unauthorized access to customer accounts. These attempts may be automated or part of a targeted effort to compromise account credentials. 

How payment fraud affects businesses 

infographic demonstrating how payment fraud affects businesses


Payment fraud can have immediate financial consequences and long-term operational impacts. Beyond lost revenue, it can affect customer trust, internal resources and a business’s ability to process payments reliably. 


Financial loss and chargebacks 


Financial loss is one of the most direct consequences of payment fraud. Businesses may lose revenue from unauthorized transactions, refunded purchases or goods that can’t be recovered. 

Chargebacks can create additional financial strain. In addition to losing the original transaction amount, businesses may face chargeback fees and increased monitoring from payment providers. Frequent chargebacks can also affect a business’s ability to accept payments smoothly. 


Operational disruption 


Payment fraud often requires immediate investigation and response, which can disrupt normal business operations. Staff may need to review transactions, respond to disputes and communicate with payment processors or financial institutions. This can divert time and resources away from core business activities. 


Repeated fraud incidents can also lead to stricter internal procedures and additional verification steps. While these safeguards are important, they may slow down payment workflows and require ongoing administrative attention. 


Reputational damage 


Customer trust plays a critical role in any business relationship. When fraud occurs, customers may question whether their payment information is being handled securely. This can affect their confidence in making future purchases. 


Reputational damage can also impact long-term customer relationships and brand perception. Businesses that experience frequent fraud incidents may find it more difficult to maintain customer loyalty and attract new customers. 


Compliance and security implications 


Payment fraud can expose weaknesses in payment security practices and increase compliance responsibilities. Businesses that handle payment data are expected to follow security standards designed to protect customer information. Failure to maintain strong safeguards can increase fraud risk. 

Fraud incidents may prompt businesses to review their systems, update security measures and strengthen internal controls. Maintaining secure payment infrastructure and following established security standards helps reduce vulnerabilities and protect sensitive payment data. 

How to prevent payment fraud 

infographic showing how to prevent payment fraud


Preventing payment fraud requires a proactive approach that combines secure payment technology, strong data protection practices and internal safeguards. Businesses that implement layered security measures can significantly reduce their exposure to fraud risk, and understanding common fraud prevention tips and tactics can further strengthen their protection. 


Using secure payment systems 


Secure payment systems play a critical role in preventing unauthorized transactions and protecting sensitive payment information. Modern payment infrastructure uses technologies such as encryption and tokenization to ensure payment data cannot be easily intercepted or reused. 

These systems may also support PCI DSS compliance, which establishes security standards for handling cardholder data. Using payment systems designed with built-in security protections helps businesses reduce vulnerabilities and process transactions more safely. 


Monitoring transactions and detecting anomalies 


Monitoring payment activity helps businesses identify suspicious patterns before fraud causes significant damage. Unusual transaction amounts, repeated payment attempts or unexpected account activity can indicate elevated fraud risk. 

Payment systems with built-in monitoring capabilities can help detect anomalies and flag potentially fraudulent transactions. Early detection allows businesses to review activity quickly and take steps to prevent further unauthorized transactions. 


Protecting payment data and customer information 


Protecting payment data is essential for reducing fraud risk and maintaining customer trust. Sensitive payment information should be handled securely and only stored when necessary, using systems designed to protect transaction data. 

Businesses should also ensure their payment processes follow established security standards and best practices. Protecting customer information helps prevent unauthorized access and reduces opportunities for fraud. 


Training staff and maintaining internal safeguards 


Employees play an important role in preventing payment fraud. Staff should understand common fraud risks and follow secure procedures when processing transactions or handling payment information. 

Clear internal processes help reduce errors and improve fraud awareness. Businesses that maintain strong internal safeguards and consistent security practices are better positioned to prevent fraud and protect their operations. 

What to do if your business experiences payment fraud 

Responding quickly to payment fraud can help limit financial losses and prevent further unauthorized activity. Taking the right steps ensures the incident is contained, investigated and addressed appropriately. 


Secure affected accounts and systems  


The first priority is to secure any affected accounts, payment systems or access points. This may include resetting passwords, restricting account access or reviewing recent system changes to prevent further unauthorized activity. 

Taking immediate action helps contain the issue and reduces the risk of additional fraudulent transactions. Ensuring that only authorized users have access to payment systems is essential for restoring control and maintaining security.  


Review transactions and identify the scope 


Carefully reviewing recent transactions helps determine the extent of the fraud and identify any suspicious activity. This includes looking for unusual transaction amounts, unfamiliar customers or unexpected changes to account information. 

Understanding the scope of the incident allows businesses to take appropriate action and strengthen any areas where vulnerabilities may exist. Documenting findings can also help support investigations and dispute resolution. 


Notify your payment processor and financial institutions 


Contacting your payment processor and financial institutions as soon as possible is critical. They can help investigate the incident, provide guidance and take steps to prevent additional fraudulent transactions. 

Early notification improves the chances of limiting financial impact and helps ensure proper procedures are followed. Payment providers may also recommend additional security measures to protect your business.  


Document the incident and strengthen safeguards 


Maintaining clear records of the incident, including affected transactions and actions taken, helps support internal review and future prevention efforts. This documentation may also be needed when working with financial institutions or resolving disputes. 

After addressing the immediate issue, businesses should review their payment security practices and strengthen safeguards where needed. Improving payment security measures helps reduce future risk and reinforces overall payment protection. 

How secure payment systems help reduce fraud risk

 

Secure payment systems play a critical role in protecting businesses and customers from payment fraud.

 

Modern payment infrastructure uses multiple layers of protection to help safeguard transaction data, verify payment activity and reduce exposure to unauthorized access.   

These systems use layered security measures designed to prevent, detect and respond to fraud threats throughout the transaction lifecycle. 


Encryption and tokenization  


Encryption protects payment data by converting sensitive information into unreadable code during transmission. This ensures that even if data is intercepted, it cannot be used without proper authorization. Encryption helps protect cardholder data throughout the payment process. 

Tokenization adds another layer of protection by replacing sensitive payment information with unique tokens that have no exploitable value. This prevents actual card data from being stored or exposed, reducing the risk of data theft and unauthorized reuse. 


Authentication and verification tools 


Authentication tools help confirm that transactions are being performed by authorized users. Methods such as multi-factor authentication, device verification and secure login protocols help prevent unauthorized account access. 

These verification measures reduce the risk of account takeover and unauthorized transactions. Strengthening authentication helps ensure that only legitimate users can access payment systems and complete transactions. 


PCI DSS compliance and secure infrastructure 


PCI DSS compliance establishes security standards for protecting cardholder data. Payment systems designed to support PCI DSS compliance help ensure payment information is handled securely and protected from unauthorized access. 

Secure infrastructure also includes safeguards such as access controls, secure networks and system monitoring. These protections help reduce vulnerabilities and strengthen overall payment security. 


Transaction monitoring and fraud detection 


Secure payment systems include fraud prevention tools that monitor transactions in real time and help businesses identify and respond to suspicious activity more quickly. These systems can detect unusual patterns such as unexpected purchase amounts, unfamiliar locations or rapid transaction attempts, allowing businesses to investigate before further fraud occurs. 

Additional safeguards, such as Card Verification Value (CVV) and Address Verification Service (AVS), help verify that transactions are being completed by legitimate cardholders.  

Additionally, authentication protocols like 3-D Secure add another layer of protection by requiring additional identity verification during online transactions. Together, these layered protections help reduce fraud risk and support secure, reliable payment processing. 

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Moneris Team

Moneris is a leading provider of payment processing solutions in Canada. Our blog is your go-to resource for insights into the ever-evolving world of payments. We cover everything from the latest industry trends and technologies to practical advice for businesses of all sizes. Our blog's mission is to spotlight small businesses and provide resources that help them succeed in today's economy. Blog articles are written by members of Moneris' in-house marketing team with support from internal product and industry experts.

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