7 Top Benefits Of Using Digital Payment Systems For Small Businesses

Learn about the various benefits of digital payment systems for small businesses and how to set it up to manage finances better.
April 2, 2024
Gautham Gopakumaran
5 min read

Dreaming big and running into a cash flow crunch is not ideal for a small business. 

Still, 82% of small businesses that go out of business mention cash flow as the main reason. 

Keeping track of your incoming and outgoing money will help you build a sustainable and profitable business in the long run. 

With proper cash flow management, you can hire people, buy raw materials, invest money in your business, and still pay your bills and make a profit. 

But it's easier said than done, especially if you manage things the old way in sheets.

Some small businesses also use bookkeeping software to track their cash flow. 

Although it's better than managing cash flow in sheets, it often fails to keep track, especially when customer transactions are increasing and your business is growing. 

Then what’s the solution?

The short answer is digital payment systems.

In this article, we’ll discuss what it is and how your business can benefit from using it. 

But before that, let’s quickly understand what a digital payment system is. 

Recap: What is a digital payment system?

A digital payment system, also known as the electronic payment system, allows businesses and individuals to transact through electronic devices like smartphones or computers.

Digital payment systems have become super popular over the years because of their convenience, security, and efficiency. 

Smart payment solutions like Payby enable you to integrate a digital payment system for your business. 

So, whether your customer prefers to pay via a QR code, mobile wallet, or more traditional credit/debit card, you have it all on your checkout page.  

What are the benefits of using a digital payment system? 

The digital payment system has multiple benefits for small businesses. These are:

1. It’s convenient 

Digital payment systems are convenient and, hence, widely preferred by customers.

In the UAE, 88% of consumers mentioned that they have used at least one emerging digital payment method, as Mastercard mentions in one of their surveys. 

The same report mentions that consumers are turning towards digital finance options for their everyday needs because of their speed, convenience, and transparency. 

Moreover, a digital payment system can securely store a customer’s preferred payment options and card details, which means repeat customers don't have to enter the same information again. 

Offering such convenience to customers boosts repeat sales for your business. 

Recommended read: How do payment gateways impact user experience

2. Improves cash flow management

Digital transactions also help small businesses manage their cash flow effectively, enabling you to keep track of the inflow and outflow of funds. 

The transaction history gives you insight into spending trends, cash management, and sales. 

This insight can help you more accurately predict future income and expenses. 

As a business owner, you don't need to wait for checks to clear. You can receive instant payments for products/ services sold. 

Many digital payment systems integrate with accounting software, recording all incoming and outgoing transactions. 

This streamlines the reconciliation process and provides real-time visibility into your cash flow, enabling you to make informed decisions at the right time. 

Moreover, by automating the whole process, you remove the scope of manual error that would have happened if you were keeping track of the cash flow manually. 

3. Enhanced security

Digital payment systems are secured and reduce the risk of fraud as every transaction can be tracked in real-time.

With the help of secure gateways, you can enhance the security of every transaction. 

You can also safeguard customers' sensitive personal data and banking information through advanced security measures. 

With features like data encryption and fraud protection, tokenization of websites, and biometric payment methods, consumers' sensitive information can be kept safe.

For example, PayBy, which enables business growth with cashless payments, is trusted by some of the leading brands in the UAE. 

The brand is also licensed by The Central Bank of the UAE, which helps them earn trust and a good reputation.

It has been given the highest levels of financial service approvals to conduct Stored Value Facility (SVF) and Retail Payment Services (RPS) operations. 

Recommended read: Cybersecurity in digital payments

4. Broader customer base access

Digital payments allow small businesses to increase their customer base. 

With digital payment solutions, small businesses can offer their products/services to non-local customers and all those who prefer online shopping. 

Anyone with internet access can visit your website and make a purchase. 

Digital payments like Payby also empower you to run subscription-based businesses. 

You can simply integrate gateways with your existing website so you can host the payment page and customize it according to your needs. 

Plus, multiple payment options encourage customers worldwide to view and purchase from your website. 

5. Data and insights for better decision-making

Digital payment solutions generate tons of data that can give you a lot of insights.

For example, look into the transaction history to understand what time your sales peak, what are the most preferred payment methods, which is your most selling product, the purchase behavior of the customers, spending trends over the years, and where your funds are used most. 

Scrutinize these data, and you will be able to make a better business strategy that's backed by data. 

6. Shop on the go

The biggest benefit of a digital payment system is that it enables you to do a transaction anytime and anywhere. 

It’s instant, and there’s never a delay due to a nearby ATM running out of cash or you need to wait for a long time in the queue. 

You can continue to do business as usual, even if there's a holiday or a time zone difference for cross-country transactions.

7. Reduce transaction cost

Paper-based payments are a hassle for small business owners and suppliers. 

Besides the hassle, the entire transaction process is slow. 

The entire process of collecting and processing a paper check may take almost two weeks. 

Additionally, collecting and processing paper checks is a costly affair. 

Data says it costs almost $13 to send an invoice and $5 to process a single invoice check. 

Digital payments are easy, hassle-free, fast, and less expensive for businesses. Plus, it’s environmentally friendly too!

Ready to transition to a digital payment system?

If you’re a small business owner, implementing a digital payment solution can be really beneficial to grow your business. 

Payby offers various payment solutions that are perfect for small businesses to scale their business. 

Whether you want to set up QR code payments, payment gateway, virtual accounts, wallets, or recurring payments and auto-debits, Payby has got you covered. 

It also offers the lowest transaction/ payment processing rates, which means you have more control over the revenue you get from each sale. 

Ready to explore?

Get started with Payby today.

Ready to track and record transactions more efficiently?

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Related Articles

Chargeback Management: How Payment Gateways Can Help

Gautham Gopakumaran
5 min read
May 20, 2024
Payment Gateway, Chargeback

The digital shift is today’s reality, more vividly in the payment industry. Digital transactions are super convenient and have changed the face of payments. But it also has its share of challenges.

Some of the common challenges include safety and security issues, technical challenges, geographical limitations, payment processing downtime, and chargebacks.

While they all affect your business’s finances and cashflow, one of the most challenging ones to handle are disputes and chargebacks. If a business sells to global markets and manages records manually, they can potentially end up spending hours on the audit process and still lose the case.

In this blog, we give you a quick recap of what chargebacks are, common chargeback reason codes and how payment gateways like PayBy can help you prevent them.

What are chargebacks?

When a customer disagrees with a charge and disputes the transaction, it leads to what is called a chargeback. A successful chargeback reverses a payment and sends the amount back to the customer’s account.

But in addition to the reversal, the issuing bank or credit card issuer levies a fee on the merchant and the payment gateways.

This results in merchants experiencing revenue losses and paying additional fees, which affects their bottom line. A high chargeback rate can also lead to revoked payment processing privileges.


It is important to note that a chargeback is not similar to a refund. In a refund, the merchant voluntarily disburses funds for whatever reason. However, chargebacks are initiated by customers mostly via the issuing bank.

Here are the steps for how a chargeback is processed:

  • Dispute initiation - a customer connects with the issuing bank to dispute a transaction for a reason. The issuing bank, in partnership with the acquiring bank, lodges the dispute and processes it. Money is debited from the merchant’s account and credited back to the customer’s account. The payment gateway notifies the merchant of the transaction, following which the merchant can take action.
  • Merchant response - when notified, the merchant launches an investigation into the dispute. The merchant can choose to accept the chargeback or counter the dispute by submitting evidence to prove the request is invalid.
  • Issuer's decision - when the merchant counters the dispute to claim the request is invalid, a dispute resolution process is initiated. The issuing bank reviews all submitted documents to make a decision.
  • Potential outcomes - if the evidence is legit, the merchant wins the chargeback and the funds. Otherwise, the dispute and the chargeback are lost.

In this process, payment gateways play the role of notifying the merchants about the issuing bank initiating the chargeback. They also help with processing, managing and mitigating chargebacks in the future.

What are chargeback reason codes?

Issuing banks, while processing a chargeback transaction, issue an alphanumeric charge code. The purpose of the charge code is to inform the merchant of the reason behind the chargeback request. These reason codes are unique to card networks such as Visa, Mastercard, Botim, and more. Payment gateways may launch their own set of reason codes too.

These alphanumeric codes are carefully structured to educate the merchant about the underlying reason for the dispute. Some codes are alphabetic, like “DP”, illustrating the initials of the reason “Duplicate Processing”. While some are a combination of letters that explain the dispute group and numbers that point out the exact reason. For example - F14, where “F” is fraud and “14” is the reason.

Though the reason code system in chargeback management might differ, the categorization is more or less similar:

  • Processing errors
  • Authorization errors
  • Fraud
  • Customer disputes
  • Miscellaneous
  • Not classified

How payment gateways help manage chargebacks 

Chargebacks are not just merchant liability; they cost payment gateways a fee too. For company financials as well as better partnerships, payment gateways can help merchants with chargeback management.

Payment gateways assist merchants with better tools, features, accessibility, fraud detection, and management processes to resolve chargebacks. Some payment service providers go the extra mile to work with issuing banks for better merchant account status management. Here are some of the assistance from payment service providers:

Fraud prevention tools

Payment service providers maximize machine learning (ML) and artificial intelligence (AI) usage. These technologies have the power to detect and stop fraudulent activities. They can also pick up patterns of possible fraudulent activities and take the correct measures to cut them off.

Furthermore, the service providers deploy strict safety features such as multi-factor authentication (MFA) to authenticate users, card verification value (CVV) or card security code (CSC) to increase security, advance verification services (AVS) to compare and verify billing addresses, and more.

Dispute resolution features

Payment gateways provide guidance and support to resolve debit as well as credit card disputes. They offer an established process for dispute resolution that merchants can plug in and deploy. Besides being equipped with the process, they also provide real-time access to any data, documentation support, transaction records, communication channels, and evidence-gathering support.

They may also offer educational materials that walk merchants through best dispute resolution practices, strategies, compliance information, and more.


Some payment solutions can help merchants automate many mundane chargeback management steps. They help the company set up an automated chargeback alert to generate real-time triggers every time a customer requests a chargeback. Such prompt notifications leave enough time and room for merchants to chart a course of action in their favor.

Risk analysis

The chargeback resolution process is complex, time-consuming, and labor-intensive. It only makes sense to counter a chargeback and go through the entire resolution process when the odds are in your favor. Some payment providers can help you with just that.

They offer risk analysis based on all the data and documents. You can generate a detailed report of your winning or losing chances, or at least get a percentage win score. You can then analyze it to decide whether to fight a chargeback or accept it.

How can merchants prevent chargebacks with payment gateway assistance?

Spare yourself and your employees the hassle of chargeback resolution and strategize its prevention. Here’s what you can do:

  • Communicate clearly - practice clarity in communications. Communicate the terms and conditions of your product or service, features, pros and cons, agreements, policies, and more to your customers in an easy-to-understand manner. Eliminating misconceptions can reduce chargeback requests to a great extent.
  • Prioritize safety - choose the payment gateways that provide a high level of safety and security. You, your business, and your clients are in dire need of this. A couple of the safety measures you can follow are encrypting customer data for safe storage and following authentication practices like requesting multiple-factor authentication or CVV codes. AVS (Address Verification System) is another safety measure where billing addresses are cross-checked for verification.
  • Be thorough - have thorough steps in place to verify a transactor and the status of the transaction. Always confirm if the product was delivered, its delivery time, and receiver. As the merchant, you also need to have a thorough billing process. Display the charges and a breakdown in detail. Also, include any additional charges as and when they are levied.
  • Improve customer service - gaps in customer service often lead to chargebacks. You must provide your customer support team with everything they need to resolve customer queries proactively. You can also educate your customers to seek help from your helpline numbers before disputing a chargeback because it is faster.
  • Do follow-ups - you must monitor your chargeback rate and constantly try to improve it. You can always get started with your existing customers. Collect feedback from them to identify the shortcomings, if any, and ultimately correct your chargeback rate.
  • Keep records - maintain a database of your customers as well as chargebacks. In this way, you will have access to any documents you might need as proof, for research and analysis, and more.
  • Implement Security - you can use your payment gateway’s fraud detection tool to keep malicious activities in check. These tools not only detect and stop existing types of fraud attempts but also analyze data to find emerging patterns.

Lastly, be aware and informed at all times. Know your industry regulations, legal obligations, limitations, best practices, and more to make the best decision for your company. Build processes tailored to the unique needs of your company.

If you are on the lookout for a payment gateway that offers chargeback management assistance, PayBy can help you. We offer end-to-end chargeback management and also shield your business from false chargeback requests.

Get started today and manage chargebacks efficiently with PayBy.

Everything You Need to Know About Payment Gateway Reconciliation (2024)

Gautham Gopakumaran
5 min read
May 15, 2024
Payment Gateway, Payment Reconciliation

Payment gateway reconciliation keeps financial discrepancies away at the speed of transactions happening. However, it is often overlooked and the context is mistaken to be too heavy when clearly it is not.

In this blog, learn what it is, how it works and reasons why doing it manually is not a good idea for your business.

What is payment gateway reconciliation? 

Payment gateway reconciliation involves analyzing payment gateway information and bank balances for matching and identifying any discrepancies. It ensures there are no gaps between both books and if there are it immediately provides you with all the accurate information.

How does payment gateway reconciliation work? 

Here’s are the steps payment gateway reconciliation includes: 

  • Transaction Recording: When a customer makes a payment through your website or other channels, the transaction details are recorded in your payment gateway. This includes information about the transaction amount, date, payment method, and customer details.
  • Bank Deposits: Funds from these transactions get deposited into your merchant account or bank account after the defined settlement period.
  • Reconciliation: The transactions recorded in your payment gateway are compared with the corresponding deposits in your bank account.
  • Identifying Discrepancies: These could include missing transactions, duplicate transactions, or errors in transaction amounts.
  • Resolution: This typically involves contacting the payment processor or bank to investigate further, correcting any errors in the accounting records, or taking other necessary actions to ensure accurate financial reporting.

Why is payment gateway reconciliation important? 

Here are some reasons why payment gateway reconciliation is so important for your business.

1. Accuracy in financial reporting

With payment gateway reconciliation, both internal and external processes of financing are scrutinized. It helps to ensure that all the financial transactions are accurately recorded and processed. It also helps in compliance with all banking and accounting standards and regulations.

2. Fraud detection and prevention

Reconciliation involves matching the internal records with actual transactions to identify any discrepancies including unauthorized charges, and duplicate transactions. It also helps in preventing any fraudulent activities by keeping a constant check on financial transactions.

4. Improved decision-making

Accurate tracks of financial transactions with every important detail help businesses to remain informed and make strategic decisions about budgeting, forecasting, and resource allocation. This clear understanding allows you to be more confident about your financial decisions.

5. Compliance and auditing

Payment gateway reconciliation ensures compliance and facilitates auditing processes by accurately tracking financial transactions, maintaining transparency, and adhering to regulatory standards. This helps businesses avoid legal issues and financial penalties while ensuring trust and credibility with stakeholders.

6. Customer satisfaction

When transactions are processed accurately and efficiently, customers experience fewer issues such as overcharging, double billing, or payment failures. This reliability in payment processing builds trust and loyalty among customers, enhancing their overall experience with the business.

7. Cash flow management 

By reconciling payments with bank deposits, businesses can track their cash flow more effectively. This allows them to monitor incoming funds, identify any delays or discrepancies, and make informed decisions to manage operational and growth finances.

What are the common challenges of payment reconciliation? 

Some common challenges in manual payment gateway reconciliation process are:

1. Volume of transactions and manual errors 

A high number of transactions challenges the accuracy of the manual payment reconciliation process. It is also time-consuming and there is no guarantee of human errors while transaction matching. This can result in incorrect financial entries affecting financial reporting and decision-making negatively.

2. Complexity of transactions and processes

Financial accounting includes several complex transactions such as:

  • Partial payments
  • Refunds
  • Chargebacks, or 
  • Split payments

These can be challenging for manual payment reconciliation as keeping a record and matching these transactions require careful attention to detail.

Also, the reconciliation process in itself if done manually is pretty time-consuming, and the added complexity will only make it more difficult.

3. Timing differences

When a transaction is made and actually processed in a bank account is delayed or done in different timezones, it is a challenge. The manual recordkeeper has to go to an extent to identify the reason for discrepancies happening due to timing differences.

4. Bank reconciliation

The reconciliation process requires all complex banking factors beyond simple credit and debit transactions. It needs to cover factors such as outstanding checks, deposits in transit, bank fees, and interest charges. Ensuring that the bank balance matches the book balance requires thorough examination and adjustment of discrepancies.

5. Resource constraints

Taking care of such a detailed process of book and bank balance matching and ensuring compliance requires a great deal of effort and resources. If done manually, you need to devout the right time & budget and excel in experience.

6. Regulatory compliance

Businesses need to adhere to regulations such as the Payment Card Industry Data Security Standard (PCI DSS) and the General Data Protection Regulation (GDPR). Compliance with standards laid by these regulations is important in every situation otherwise leading to severe penalties and reputational damage. Manually, it is very difficult to keep track of all their standards for every financial operation as businesses need to

  • Stay updated with the latest regulatory changes
  • Conduct regular audits
  • Implement necessary security measures

7. Legacy Systems and fraud detection

Legacy systems lack interoperability or automation capabilities, making payment reconciliation processes inefficient and error-prone. Integrating data from disparate systems and maintaining compatibility with modern tools can be challenging for businesses.

In addition to the same, most legacy systems lack fraud detection capabilities. Their inability to identify suspicious patterns or anomalies in transaction data requires continuous monitoring and analysis, which can be overwhelming to handle.

Consequences of inaccurate reconciliation 

Here are the consequences you must know you can face with inaccurate reconciliation.

1. Financial loss

One of the direct consequences of an inaccurate reconciliation is financial loss. When doing reconciliation manually, you tend to make mistakes such as missing or duplicate transactions, incorrect amounts, or unauthorized charges. It can result in the gap between actual and reported revenue leading to financial discrepancies.

2. Cash flow problems

Inaccurate financial reporting will lead to false information of balance. This may result in cash shortages or delays impacting the business's ability to operate smoothly. It will completely impact your financial planning, leading you to make bad decisions.

3. Compliance issues

Accounting integration reconciliation takes care of compliance with industry standards, and inefficient reconciliation will lead to severe penalties and reputational damage.

4. Fraud and security risks

Inaccurate financial reconciliation can leave you and your business vulnerable to fraud and security breaches. Failure to identify any fraudulent activity in the bank and book balance can lead to great financial losses.

5. Operational disruptions 

Without accurate financial data, businesses can struggle to effectively manage their resources, plan for the future, and make informed business decisions. This could impact both the resources and the skills they need to keep the business running.

6. Reputation damage 

Customers quickly lose trust in the business if they experience billing errors or discrepancies, which can lead to negative reviews, complaints, and loss of business. This can damage the business's reputation among customers, suppliers, investors, and other stakeholders that play a part in their growth.

7. Audit failures

Auditors typically rely on accurate financial records to assess the business's financial health and compliance with regulations. Inaccurate reconciliation can raise red flags and even lead to penalties.

Recommended read: A Guide to Online Payment Security For Business Owners

Why should you use automated payment reconciliation methods? 

Understand why you should use an automated payment getaway reconciliation method with reasons including

1. Time efficiency and accuracy

Automated reconciliation processes and analysis of large amounts of transactional data in no time allow businesses to reduce time and effort. It also uses algorithms and advanced technology to ensure the accuracy of the results is uncompromised.

2. Real-time insights 

Automated reconciliation tools provide you with real-time insights about your transactions. These insights help businesses to:

  • Identify trends
  • Optimize cash flow management 
  • Financial analysis and forecasting 

3. Cost-efficient and scalable

Automation reduces the need for resources required for manual efforts. It allows you to analyze and match bank and book balances with accurate insights without the need for the team. Automated reconciliation systems can also adapt to changing business needs. It is scalable enough to accommodate fluctuations in financial reporting.

4. Easy compliance and fraud detection

With automation, there is no need to keep a close eye on all rules. It helps businesses to maintain compliance in the background. It ensures compliance with all updated industry standards and regulations.

Automated error reconciliation also prevents fraud as early as possible by identifying suspicious patterns in financial transactions. This enables you to get plenty of time to act upon it and save from further damage.

Recommended read: How AI is transforming fraud detection in payments

5. Improved Customer Experience

Automated reconciliation processes can also enhance the customer experience by reducing billing errors, discrepancies, and delays in processing payments.

Customers benefit from smoother transactions and more accurate billing, leading to increased satisfaction and loyalty.

Recommended read: How to improve payment processing user experience

Simplify payment gateway reconciliation with PayBy

Payment gateway reconciliation can be a very overwhelming process to handle when done manually. This is where using a payment solution like PayBy comes into play.

PayBy enables business growth by easing cashless payments for customers with powerful payment gateway reconciliation features.

Get started to know more.

The Future of Biometric Authentication in Payment Systems

Gautham Gopakumaran
5 min read
April 29, 2024
Payment security

Backtracking a few years, we could never imagine biometric authentication as a thing of today, as we are in it today. We can still evidently remember being in awe the first time our eye scans were used and the rest is history.

Fast forward to today; we do not just have PIN codes and patterns to access devices, we also use fingerprints, facial features, voice recognition, and so on. While there is still a lot to discover about biometric authentication, especially for the payments industry, the feature is all set to redefine security, convenience, accessibility, and the overall customer experience.

Let us walk you through what the future holds for biometric authentication in the payments industry and how business owners can benefit from it.

What is Biometric Authentication?

Biometric characteristics are unique physical or biological aspects of a person. These unique characteristics are recorded and used to identify people transacting via digital mediums.

Just like how people can access a device based on their unique physical characteristics, it is also used as a point-of-sale in the payments industry. Biometric authentication in payments refers to a security step used to verify a payment transaction. It detects and approves the physical characteristics of a user to authenticate or process deductions.

One of the most common mediums used in the payments industry is a fingerprint. Users can go cashless or even cardless, and make a payment using a fingerprint. There are multiple other mediums, such as the retina, signature, voice, face, and so on.

Biometric authentication in payments sits at the intersection of security and convenience. Hence, it is widely opted for and loved. This is why business owners such as you must be aware of its progress and future.

Applications of Biometric Authentication in Payments

Let’s walk through the types of biometric authentications used during a payment. Here are all the possible applications for payment solutions:

Fingerprint Scanning

Fingerprints are unique to individuals and easy to detect and use. Payment providers and users prefer this method over all the others because of its ease and security. So much so that five in six (87%) consumers use or plan to use this medium.

Hence, payment gateways and apps such as Google Pay have widely adopted it to authorize payments. Users can choose to either enter their PIN to gain access to the app or, alternatively, go for a fingerprint.

Facial Recognition

This technology uses the facial features of a person to authenticate a financial transaction. This feature is the second most popular option around the country. One great example is facial recognition-enabled shopping at Carrefour. Shoppers can make payments simply by smiling at the payment counter’s camera.

Alternatively, this technology can be used for online payments as well. Users can check out their purchase using facial recognition via their mobile phone’s camera. Security comes along with convenience because facial features are indeed another unique human trait.

Voice Recognition

Similar to facial recognition technology, voice recognition works on the vocals of an individual. This technology can identify vocal characteristics unique to individuals and facilitate a transaction.

Though not as common as fingerprint and facial recognition, voice-enabled payments are on the rise. Users can read out a command or passphrase to authenticate payments in mobile wallets, banking apps, smart speakers, and more.

Iris Recognition

This technology scans a person’s eye to read unique patterns in the iris, i.e., the colored part of the eye. This technology also uses cameras at checkout counters or mobile devices to scan an eye and authenticate payments.

They are a perfect fit for payment services used in high-security areas like airports, government services, health care services, and more. Because this technology helps fight identity theft, it is deployed in places with security concerns.

Behavioral Biometrics

Another mode of biometric authentication is behavioral patterns. Not everyone has the same movements, the same rhythm of doing things, or the same use cases and interactions with digital mediums.

Payment gateways can detect such behaviors as typing speed, mouse usage, or how the user has interacted with the mobile’s display to identify the right personnel. This technology has the potential to be a widespread medium that works without extra user input. Say hello to the most frictionless payment experience.

Palm Vein Authentication

This technology captures the unique vein patterns on a user’s palm for authentication. This technology is used in places where physical contact is dangerous, such as healthcare facilities.

Plus, the palm vein is considered a better alternative to a fingerprint. Fingerprints are affected by age, disease, skin state, and more, but not palm veins, which remain the same from childhood.

Heartbeat Authentication

This technology is not deployed or put to use currently since it is still in the trial phase. This technology is built to identify and verify the unique patterns of a person’s heartbeat. The progress is gigantic and has the potential to be yet another safe, secure, and contactless biometric authentication mode.

Multi-Modal Biometrics

Not just biometric technology, but AI technology for dubious transactions is also evolving. Hence, multiple biometric modes can be used to enhance security and 2x authentication accuracy.

Activating multiple modes, say fingerprint and facial recognition or iris and voice recognition together would guarantee high security levels. Results? happy customers and accurate payment processing.

Tokenization with Biometric

Storing biometric data has another limitation: theft. Just like sensitive card information can be replaced with a digital identifier called a token for storage, biometric data can be replaced with a cryptographic token.

They are generally an alternative to a user’s identity and can be stored and used for authentication purposes. This leads to better privacy and security for the user’s data.

Advantages of Biometrics in Payments

But, with all the existing authentication mediums, why should you choose biometrics in payments? Here are some of the benefits of biometrics in payments:

  • Enhanced Security - biometric features are hard to replicate because they are unique to every user. Passwords can be the same, PINs can be the same, but not biometric features.
  • Reduced Fraud - biometric authentication is an extra layer of security. The one that scammers cannot pass through. Scammers cannot act like other users or steal their unique biological traits.
  • Convenience - carrying cash or cards is not really a thing with biometric authentication. Users can initiate and complete payments without even monitoring passwords. They can just use any biometric mode and make a purchase, maximizing convenience and experience.
  • Frictionless Transactions - biometric authentication is seamless and easy as opposed to entering passwords during checkout, hence reducing friction. Multiple taps and steps are replaced with just one activity, such as displaying a palm/fingerprint, eye, or face. Super easy, isn’t it?
  • Reduction in Identity Theft - Scammers can steal card identities, but not the unique biological features of humans. It is very difficult for fraudsters to pass, say, a user's fingerprint or facial recognition.
  • Improved User Experience - with reduced friction, users can enjoy an improved and seamless payment experience. The combination of convenience, ease, and security that biometric authentication offers enhances user experience.
  • Lower Operational Costs - an initial investment is required for this technology, but it reduces operational costs in the long run. There are no other costs associated with this technology.
  • Compliance with Regulations - this technology is compliant with country regulations. If you guarantee data privacy for your users, you may use their biometric data to facilitate payments.
  • Future-Proofing - the benefits we see are just the beginning of this technology. It is evolving with a high adoption rate across the payments industry. This is a plan for the long run.

Challenges of Biometrics in Payments

Nothing exists without cons, and here are the challenges facing biometric usage in payments.

  • Privacy Concerns - biometric data is private, and there can be user concerns or resistance to companies storing their biological or physical details.
  • Security Risks - there are some security risks associated. Spoofing is the process of fooling authentication technology with fake artefacts.
  • Accuracy and Reliability - storage of biometric quality has a direct impact on accuracy. When not done right, it can also reject a genuine user, creating friction.
  • Interoperability - information exchange between different systems is a grave threat to privacy.
  • User Acceptance and Adoption - not everyone is comfortable with using their biometric identity to make payments.
  • Regulatory Compliance - biometrics is a user’s private data at the end of the day. It has to be handled with care, or there can be legal implications.
  • Cost and Complexity - the technology is not widespread and comes with extra requirements like cameras and detectors; hence, gets pricey. Plus, it is often pretty complex to integrate and deploy.
  • Single Point of Failure - if the authentication fails, the entire transaction will fail as well, creating user friction. Additionally, when compromised, there is no alternative access for users.
  • Ethical and Societal Implications - biometrics are physical traits and hence might have ethical and societal implications.

Biometric authentication will change the face of payments. It is all set to offer increased security, efficiency, and convenience. But there’s more to this technology than we have already experienced. It is in the evolution phase right now as companies assess its pros and cons.

The future of biometric authentication in payments, however, is bright.

How AI is Transforming Fraud Detection in Payments

Gautham Gopakumaran
5 min read
April 22, 2024
Payment security, Artificial Intelligence

Cashless is the new currency of the country and a fully cashless society is soon to be a reality.

Predictions are that the UAE will become fully cashless by 2030.

While digital payments are clearly convenient, there are some cons consumers and businesses both need to be wary about - especially, frauds and scams.

Over 50% increase in fraud reports for the year just proves the intensity. It gives us all the reasons why it is important to implement robust fraud detection in payment. And that’s where you can call AI or Artificial Intelligence to the rescue.

The machine learning algorithms, predictive analytics, natural language processing, and other capabilities that AI brings do not just solve the efficiency, accuracy, and user experience challenges, but also help identify malicious activities.

This article will walk you through the transformation of AI in fraud detection.

Challenges of Fraud Detection

Advancement is everywhere. While your payment systems have evolved, so have the fraud techniques become sophisticated.

Here’s the thing with the traditional fraud detection systems, they are built to work on fixed patterns and rules. They are rigid with the capability to identify just the existing trends. This is why your current detection system might fail to determine the onset of new fraud trends.

Secondly, such a system reports anything that goes beyond the fixed rules. Result? False alarms. It also blocks genuine customers out and reports them leading to business loss. This is why your business needs a system that can adapt to evolving business needs and AI in fraud detection comes into play.

How is AI Used for Fraud Detection

Artificial Intelligence uses a set of machine learning algorithms with the capability to analyze and identify abnormal behaviors or patterns. The first step in the process is - learning the normal behaviors and what’s considered standard user behaviors while making payments. For the next steps, this technology scans through all the data to find any behaviors that are off the track. It doesn’t end here, where the traditional fraud detection systems do, i.e. detect and report anything abnormal.

AI now takes a step ahead of the curve to analyze this new pattern or new behavior to understand the intention behind it. It has the capacity to alter its parameters to make sense of the new detection and understand if it is genuine or suspicious.

Based on the hypothesis, it takes immediate action by either blocking the transactions or giving access to them.

Here are some of the common AI mechanisms:

  • Data collection
  • Model training
  • Alerting and reporting
  • Feature engineering and detection
  • Self-learning

Benefits of AI for Fraud Detection

Now’s the right time to be a step ahead and safeguard your business from online threats. Learn about the benefits of machine learning and AI for fraud detection:

Enhanced Accuracy

AI algorithms are taught to pick recurring fraud instances or patterns that might miss the human eye. This meticulous scanning and detection function contributes to enhanced detection and accuracy. AI can scan through heaps of data and pick up malicious activities in no time.

Real-time Results

AI algorithms work on a real-time basis. They have the power to block suspicious activity as and when it occurs, cutting off any negative implications immediately. This keeps businesses safe from threats in all capacities.

Reduced Manual Workload

Employees would no longer spend time on manual fraud detection, monitoring, or analytics. This gives them a lot of time to focus on innovative and strategic activities to grow your business. Save your employees some time and give your business some innovative wings.

Self-learning Capacity

The technology is built to think like humans. This means it is on the quest to improve its knowledge, and the more data it gathers, the more it learns. The technology keeps growing, making better analyses and predictions. Plus, the AI systems of the world also exchange knowledge among themselves. Hence, better predictions are always evident.

Easy to Scale

No data is too much data for AI models. They have the capacity to go through tons of data, and they can do it in seconds if not milliseconds. This is extremely helpful when businesses grow. They can enjoy high accuracy and speed without having to upgrade their AI-deployed fraud detection system.

Highly Cost Effective

While there are some initial investments connected with deploying AI in fraud detection, they are cost-effective in the long run. They automate a lot of fraud detection and rectification processes and also eliminate mundane manual tasks. Not to forget, they stop fraud which can otherwise lead to heavy monetary losses. Plus, there are no additional costs during scaling.

Customer Satisfaction

Security is given with AI in fraud detection which increases customer trust and retention. Additionally, traditional limitations such as false positives are put at bay. This increases customer satisfaction and business revenue. With these benefits, business owners can enjoy a competitive advantage and massive business gains.

Common Frauds That AI Can Detect

There is no stopping new fraud scams from emerging. But, here are some of the common AI frauds you are highly likely to encounter:

Card Fraud

Scammers do not sit down to find cards with loopholes or weak security. They leverage bots to find these gaps and detect them at large to conduct a brute-force attack on payment gateways. They are extremely common and because they are done using bots, AI has the power to detect them.

AI goes beyond just reading IPs and the IP reputation of a source and into the behavior to detect what’s a bot and a real person. Based on the analysis, AI takes immediate action to block any malicious bots. CAPTCHA is another form of AI technique used to distinguish people from bots.

Fake Account Creation

The biggest prey to fake account creation is social media. There are just so many accounts creating havoc at large, and it is a bot art. They can create tons of accounts at a go to skew your, say, product reviews, spread misleading information, create malware, and more.

Heightened sign-up security is the solution you say, incorrect! Increasing the standard sign-up security process would only increase user friction, leading to an increased user drop-off rate. AI however can detect and catch bots and fraudsters from the existing signup flow.

Account Takeover (ATO)

Fraudsters cannot just create fake accounts, they can also take over your existing business accounts. This can put a strain on your business reputation and financial health.

You sure can deploy a multi-factor authentication but its effectiveness relies on users too. It doesn’t work for the ones who don’t toggle it. AI, on the other hand, has what it takes to detect the tiny clues that scream of attempted ATO, and immediately block it.

Credential Stuffing

Another method of attempted scams is credential stuffing. Well, scamsters use bots to find and fill in common usernames and passwords to crack access. They even leverage previously stolen data to detect reused passwords of users to gain access and steal.

AI is always on the lookout for accounts with multiple login failures or other such abnormal behaviors. It can find, report, and block such attempted credential stuffing breaches.

Where is AI Headed 

AI and machine learning for fraud will continue to evolve forever. This makes us confident that it can preserve your business’s security. These systems are trained to think like humans and analyze all data points like customer behaviors, device functionality, and more besides the mainstream financial data.

The result? Detection accuracy and it will just get better.

Regarding what the future holds, AI models can be trained to adapt to any possible future onsets. They will continue to be the driving security force for your business and your customers, acting as the shield of protection. We cannot emphasize their ability to self-learn and act on a real-time basis enough, which is an asset for business owners such as you. You must leverage AI in fraud detection for your payment infrastructure and reap security benefits.

Ending on this note, if you use AI for bank fraud prevention, you cannot just protect your customers from fraud but also enhance their experience transacting with you. Yes, it provides smarter detection, hypothesis, and resolution in real time. But it can also analyze customer behavior and data points that can help you make critical product enhancements and innovations.

It’s time to provide your customers with a frictionless and safe payment experience without the workload. And PayBy is here for you.

We leverage AI-based fraud monitoring, 3D secure authentication, and transaction risk analysis to provide the utmost safety. Get started with Payby to know more.