How retailers can fight AI-driven fraud without losing sales

Artificial intelligence is helping criminals create more convincing scams, imitate trusted organisations and target consumers at scale.

The threat becomes particularly acute during peak trading periods, when higher transaction volumes can make fraudulent activity harder to identify.

Yet retailers cannot respond simply by adding more security checks. A complicated checkout can frustrate genuine customers, increase cart abandonment and undermine sales.

George Ralchev, group head of risk at global payment service provider emerchantpay, says retailers must balance stronger protection with shoppers’ expectations of fast and flexible payments. Emerchantpay helps businesses accept payments online, in stores, by phone and on mobile devices.

“The goal is not only to stop fraud, but to deliver a smooth and trusted checkout experience and ultimately protect revenue and drive sales,” he says.

Fraud is becoming harder to detect

Research from emerchantpay found that 27 million people in the UK had experienced an increase in scam or fraud attempts over the past year.

Seven in ten consumers said fraud attempts were becoming more convincing, while more than half believed AI was making scams harder to identify.

For online retailers, card-not-present fraud remains a significant concern. This occurs when criminals use stolen card details or compromised accounts to make purchases without presenting a physical card.

“Fraudsters now have more tools at their disposal than ever before, and we’re seeing tactics evolve in step with developments in AI and real-time payment technology,” Ralchev says.

“As the volume of online transactions grows, card-not-present fraud presents a major challenge for digital retailers, with criminals using stolen card details or compromised accounts to make transactions appear legitimate.”

Some risks begin outside the transaction itself. Retailers that use affiliate marketing need to understand how their partners generate traffic and sales. Misleading or deceptive practices can result in complaints, payment disputes, higher chargeback rates and reputational damage.

Friendly fraud presents another challenge. Despite the name, it can be costly for retailers. It occurs when a customer makes a legitimate purchase and later disputes the payment to recover the money.

“It can be difficult to tell these cases apart from genuine disputes, which makes them particularly challenging to manage,” Ralchev says.

Emerchantpay’s research found that 7.9 million UK consumers had disputed transactions over the previous year, although not every dispute will have involved friendly fraud.

AI is making scams more convincing

The growing availability of AI allows criminals to create sophisticated scams more quickly and deploy them on a larger scale.

“The expanding capabilities and availability of AI technology have opened an entirely new world of possibility to criminals,” Ralchev says.

“Fraudsters are now able to create highly sophisticated scams and launch them more quickly and at greater scale.”

AI-generated content and deepfake technology can be used to impersonate businesses, public officials and celebrities. Fraudsters can produce false advertisements and endorsements or create fake payment platforms designed to persuade consumers to send money or disclose sensitive information.

For retailers, the damage can extend beyond direct financial losses. Fraudulent content that imitates a brand can weaken trust in that business and in online shopping more broadly.

“The key issue for retailers here is the erosion of consumer trust,” Ralchev says.

“In a digital global economy—where consumers are increasingly transacting with brands they are less familiar with—concern about fraud is creating caution and hesitancy which can impact retailers’ bottom lines.”

Fraud fears are changing shopping behaviour

Emerchantpay’s research suggests that concerns about fraud are already influencing how people shop online.

Three-quarters of consumers surveyed said they avoid making purchases directly through links on social media because of concerns about fraud and scams.

“For retailers, enhancing consumer trust is key to remaining competitive,” Ralchev says.

“Failure to provide a safe and seamless payment experience can lead to higher cart abandonment, lower customer retention and, ultimately, a loss of customer confidence which curbs sales.”

Retailers can help establish trust by clearly explaining how they communicate with customers, making security processes visible and providing guidance on what shoppers should do if something appears suspicious.

Consumer education also has an important role to play.

“Retailers, banks and payment service providers all have a critical role in ensuring people are well informed to identify fraud,” Ralchev says.

Clear information about common warning signs and secure payment practices can reduce consumers’ exposure to fraud while reinforcing confidence in the retailer.

Stronger security without unnecessary friction

Although consumers value speed and convenience, security remains a priority.

Three-quarters of consumers surveyed by emerchantpay said security was their main consideration when shopping online. Nearly seven in ten said they would accept a slightly longer checkout process to avoid storing their details online for recurring payments.

“This is the balance retailers have to get right,” Ralchev says.

“Payments are becoming faster and more seamless, and increasingly this is the experience consumers expect to receive—particularly among younger consumers. At the same time, shoppers are placing more importance on security.”

Risk-based technology can help retailers apply additional checks where they are needed without subjecting every customer to the same level of friction.

The latest version of 3D Secure authentication, known as 3DS2, can assess information such as the customer’s device, transaction history and the frequency of attempted payments. Much of this analysis happens in the background, allowing retailers to request additional authentication when a transaction appears suspicious.

“To drive activity and avoid cart abandonment, retailers must employ the right tools to prevent fraudulent transactions without creating unnecessary friction for genuine customers,” Ralchev says.

How payment technology can protect revenue

Payment service providers can give retailers access to fraud-prevention tools and specialist expertise.

“Fraud tactics are constantly evolving, which means retailers need solutions that can adapt at pace,” Ralchev says.

When assessing payment providers, retailers should consider their knowledge of emerging technology, regulation, consumer behaviour and changing fraud tactics, as well as the tools they offer.

Network tokenisation can provide another layer of payment security. It replaces sensitive card details with a unique digital token, reducing the amount of card information exposed during the payment process.

“Network tokenisation also has an important role to play here, although it isn’t a fraud-prevention tool as such,” Ralchev says.

“It makes e-commerce payments more secure by replacing sensitive card details with network-issued tokens. It can also help build greater trust across the payment ecosystem, which in turn can lead to higher approval rates, increased revenue and lower costs for merchants.”

Retailers should assess payment providers on more than their ability to detect suspicious transactions. They should also consider whether a provider can support secure and straightforward payments as fraud tactics evolve.

Payment choice can build confidence

Consumers increasingly expect retailers to support cards, digital wallets, bank transfers, mobile payments and open banking.

Offering familiar payment methods can also affect how consumers perceive a retailer. Emerchantpay found that 43% of consumers—rising to 49% among Generation Z—believed businesses offering limited payment options might be less secure.

“A broad range of payment methods can therefore help build confidence as well as convenience,” Ralchev says.

The objective is not simply to add more payment options. Retailers need to understand the risks associated with each method and apply appropriate controls.

“When delivered securely, payment choice can strengthen trust, improve conversion rates and help retailers meet changing consumer expectations without compromising on protection,” Ralchev says.

Three priorities for peak trading

Ralchev identifies three immediate priorities for retailers preparing for periods of higher demand.

Invest in payment security. Retailers should review whether their fraud-prevention technology can respond to increasingly advanced attacks.

“The tactics of fraudsters are becoming more advanced, and merchants need the strongest technology solutions and expertise in place to protect their revenue,” Ralchev says.

Educate consumers. Clear and accessible information about warning signs, secure payment practices and suspicious communications can help customers protect themselves.

“As scams become more sophisticated, helping customers recognise common warning signs and understand how to protect themselves can reduce their exposure to fraudulent activity,” he says.

Prepare before transaction volumes rise. Retailers should test their payment security and checkout journeys in advance to ensure they can handle greater demand without compromising protection or usability.

“The coming months will see transaction volumes increase and create new opportunities for fraudsters,” Ralchev says.

“Help keep your customers safe by reviewing your payment security strategy and ensure your checkout journeys can cope with higher demand.”

Agentic commerce will create new risks

The fraud threat will continue to evolve beyond peak trading periods.

“Fraud will continue to become more sophisticated, more automated and increasingly difficult for organisations to tackle alone,” Ralchev says.

“AI will give fraudsters new ways to scale attacks and make scams more convincing, which means retailers will need to invest in technologies that can identify and respond to threats in real time.”

Agentic commerce presents a new challenge. It involves AI systems that can search for products, make decisions and complete transactions on a consumer’s behalf.

“The rise of agentic commerce, where AI agents can act on a consumer’s behalf, will introduce new fraud scenarios that the industry has not had to deal with before,” Ralchev says.

“The priority will be to understand these risks early and make sure the right controls are in place as this new way of transacting develops.”

Greater collaboration will be needed as attacks become more automated and difficult for individual organisations to tackle alone.

“Success will rely on greater collaboration across the payments ecosystem, with merchants, payment providers, banks, card networks, regulators and technology companies working together to share intelligence and strengthen security standards,” Ralchev says.

For retailers, the commercial challenge is clear: fraud prevention must become more sophisticated without making genuine customers endure a slower or more frustrating checkout.

At a time when trust can determine whether a shopper completes a purchase, effective fraud prevention is no longer separate from the customer experience. It is an essential part of it.